Correlation Between Merck and Frontdoor

Can any of the company-specific risk be diversified away by investing in both Merck and Frontdoor 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 Merck and Frontdoor into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and Frontdoor, you can compare the effects of market volatilities on Merck and Frontdoor 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 Merck with a short position of Frontdoor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Frontdoor.

Diversification Opportunities for Merck and Frontdoor

-0.65

Correlation Coefficient

Merck  Frontdoor

Excellent diversification

The 3 months correlation between Merck and Frontdoor is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Frontdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontdoor and Merck 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 Merck Company are associated (or correlated) with Frontdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontdoor has no effect on the direction of Merck i.e., Merck and Frontdoor go up and down completely randomly.

Pair Corralation between Merck and Frontdoor

Considering the 90-day investment horizon Merck Company is expected to generate 0.68 times more return on investment than Frontdoor. However, Merck Company is 1.47 times less risky than Frontdoor. It trades about 0.15 of its potential returns per unit of risk. Frontdoor is currently generating about -0.07 per unit of risk. If you would invest  8,388  in Merck Company on September 5, 2025 and sell it today you would earn a total of  1,701  from holding Merck Company or generate 20.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Frontdoor

Merck Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.

Frontdoor

Risk-Adjusted Performance

Weakest

Over the last 90 days Frontdoor has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in January 2026. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Merck and Frontdoor

The main advantage of trading using opposite Merck and Frontdoor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Frontdoor 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 Frontdoor will offset losses from the drop in Frontdoor's long position.

The idea behind Merck Company and Frontdoor 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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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 the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.