Correlation Between Federated Hermes and Merck

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Can any of the company-specific risk be diversified away by investing in both Federated Hermes and Merck at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Federated Hermes and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federated Hermes Mdt and Merck Company, you can compare the effects of market volatilities on Federated Hermes and Merck and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Federated Hermes with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Hermes and Merck.

Diversification Opportunities for Federated Hermes and Merck

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Federated and Merck is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Federated Hermes Mdt and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Federated Hermes is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Federated Hermes Mdt are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Federated Hermes i.e., Federated Hermes and Merck go up and down completely randomly.

Pair Corralation between Federated Hermes and Merck

Assuming the 90 days horizon Federated Hermes Mdt is expected to generate 1.6 times more return on investment than Merck. However, Federated Hermes is 1.6 times more volatile than Merck Company. It trades about 0.04 of its potential returns per unit of risk. Merck Company is currently generating about 0.06 per unit of risk. If you would invest  1,533  in Federated Hermes Mdt on August 30, 2022 and sell it today you would earn a total of  312.00  from holding Federated Hermes Mdt or generate 20.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy60.16%
ValuesDaily Returns

Federated Hermes Mdt  vs.  Merck Company

 Performance (%) 
       Timeline  
Federated Hermes Mdt 
Federated Performance
21 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Federated Hermes Mdt are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Federated Hermes may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Federated Price Channel

Merck Company 
Merck Performance
20 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Federated Hermes and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Federated Hermes and Merck

The main advantage of trading using opposite Federated Hermes and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Hermes position performs unexpectedly, Merck can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Merck will offset losses from the drop in Merck's long position.
Federated Hermes vs. Ab Cap Fund
The idea behind Federated Hermes Mdt and Merck Company pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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