Correlation Between Merck and Longvie SA
Can any of the company-specific risk be diversified away by investing in both Merck and Longvie SA 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 Longvie SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Longvie SA, you can compare the effects of market volatilities on Merck and Longvie SA 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 Longvie SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Longvie SA.
Diversification Opportunities for Merck and Longvie SA
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Longvie is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Longvie SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longvie SA 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 Longvie SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longvie SA has no effect on the direction of Merck i.e., Merck and Longvie SA go up and down completely randomly.
Pair Corralation between Merck and Longvie SA
Assuming the 90 days trading horizon Merck Company is expected to under-perform the Longvie SA. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.43 times less risky than Longvie SA. The stock trades about -0.14 of its potential returns per unit of risk. The Longvie SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,230 in Longvie SA on September 5, 2024 and sell it today you would earn a total of 1,370 from holding Longvie SA or generate 42.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Longvie SA
Performance |
| Timeline |
| Merck Company |
| Longvie SA |
Merck and Longvie SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Longvie SA
The main advantage of trading using opposite Merck and Longvie SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Longvie SA 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 Longvie SA will offset losses from the drop in Longvie SA's long position.The idea behind Merck Company and Longvie SA 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.| Longvie SA vs. Edesa Holding SA | Longvie SA vs. American Express Co | Longvie SA vs. United States Steel | Longvie SA vs. Capex SA |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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