Correlation Between Exxon and Merck
Can any of the company-specific risk be diversified away by investing in both Exxon 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 Exxon and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and Merck Company, you can compare the effects of market volatilities on Exxon 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 Exxon with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and Merck.
Diversification Opportunities for Exxon and Merck
Weak diversification
The 3 months correlation between Exxon and Merck is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Exxon 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 Exxon Mobil Corp 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 Exxon i.e., Exxon and Merck go up and down completely randomly.
Pair Corralation between Exxon and Merck
Considering the 90-day investment horizon Exxon is expected to generate 1.07 times less return on investment than Merck. But when comparing it to its historical volatility, Exxon Mobil Corp is 1.62 times less risky than Merck. It trades about 0.15 of its potential returns per unit of risk. Merck Company is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 8,340 in Merck Company on August 16, 2025 and sell it today you would earn a total of 953.00 from holding Merck Company or generate 11.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Exxon Mobil Corp vs. Merck Company
Performance |
| Timeline |
| Exxon Mobil Corp |
| Merck Company |
Exxon and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and Merck
The main advantage of trading using opposite Exxon and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon 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.| Exxon vs. Shell PLC ADR | Exxon vs. BP PLC ADR | Exxon vs. Suncor Energy | Exxon vs. Petroleo Brasileiro Petrobras |
| Merck vs. Cencora | Merck vs. Regeneron Pharmaceuticals | Merck vs. IDEXX Laboratories | Merck vs. Haleon plc |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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