Correlation Between Merck and PetIQ

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

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

Diversification Opportunities for Merck and PetIQ

0.28

Correlation Coefficient

Merck  PetIQ

Modest diversification

The 3 months correlation between Merck and PetIQ is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and PetIQ Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetIQ Inc 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 PetIQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetIQ Inc has no effect on the direction of Merck i.e., Merck and PetIQ go up and down completely randomly.

Pair Corralation between Merck and PetIQ

Considering the 90-day investment horizon Merck Company is expected to generate 0.54 times more return on investment than PetIQ. However, Merck Company is 1.87 times less risky than PetIQ. It trades about 0.01 of its potential returns per unit of risk. PetIQ Inc is currently generating about -0.33 per unit of risk. If you would invest  13,099  in Merck Company on January 30, 2024 and sell it today you would earn a total of  21.00  from holding Merck Company or generate 0.16% return on investment over 90 days.

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

Merck Company  vs.  PetIQ Inc

Merck Company

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

PetIQ Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetIQ Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, PetIQ is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merck and PetIQ

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

The idea behind Merck Company and PetIQ Inc 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.