Correlation Between ATT and Merck

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

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

Diversification Opportunities for ATT and Merck

0.21

Correlation Coefficient

ATT  Merck

Modest diversification

The 3 months correlation between ATT and Merck is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and ATT 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 ATT Inc 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 ATT i.e., ATT and Merck go up and down completely randomly.

Pair Corralation between ATT and Merck

Taking into account the 90-day investment horizon ATT Inc is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, ATT Inc is 1.36 times less risky than Merck. The stock trades about -0.16 of its potential returns per unit of risk. The Merck Company is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  12,531  in Merck Company on January 24, 2024 and sell it today you would earn a total of  163.00  from holding Merck Company or generate 1.3% return on investment over 90 days.

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

ATT Inc  vs.  Merck Company

ATT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ATT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ATT is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Merck Company

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with ATT and Merck

The main advantage of trading using opposite ATT and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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.

The idea behind ATT Inc 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.

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 the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.