Correlation Between VanEck Semiconductor and Merck

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Can any of the company-specific risk be diversified away by investing in both VanEck Semiconductor 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 VanEck Semiconductor and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VanEck Semiconductor ETF and Merck Company, you can compare the effects of market volatilities on VanEck Semiconductor 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 VanEck Semiconductor with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck Semiconductor and Merck.

Diversification Opportunities for VanEck Semiconductor and Merck

0.37
  Correlation Coefficient

Weak diversification

The 3 months correlation between VanEck and Merck is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Semiconductor ETF and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and VanEck Semiconductor 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 VanEck Semiconductor ETF 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 VanEck Semiconductor i.e., VanEck Semiconductor and Merck go up and down completely randomly.

Pair Corralation between VanEck Semiconductor and Merck

Considering the 90-day investment horizon VanEck Semiconductor ETF is expected to generate 2.47 times more return on investment than Merck. However, VanEck Semiconductor is 2.47 times more volatile than Merck Company. It trades about 0.31 of its potential returns per unit of risk. Merck Company is currently generating about 0.39 per unit of risk. If you would invest  18,290  in VanEck Semiconductor ETF on September 4, 2022 and sell it today you would earn a total of  4,098  from holding VanEck Semiconductor ETF or generate 22.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

VanEck Semiconductor ETF  vs.  Merck Company

 Performance (%) 
       Timeline  
VanEck Semiconductor ETF 
VanEck Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Semiconductor ETF are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal primary indicators, VanEck Semiconductor may actually be approaching a critical reversion point that can send shares even higher in January 2023.

VanEck Price Channel

Merck Company 
Merck Performance
23 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

VanEck Semiconductor and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VanEck Semiconductor and Merck

The main advantage of trading using opposite VanEck Semiconductor and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Semiconductor 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.
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The idea behind VanEck Semiconductor ETF 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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