Correlation Between Merck and Compania
Can any of the company-specific risk be diversified away by investing in both Merck and Compania 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 Compania into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Compania de Transporte, you can compare the effects of market volatilities on Merck and Compania 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 Compania. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Compania.
Diversification Opportunities for Merck and Compania
Pay attention - limited upside
The 3 months correlation between Merck and Compania is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Compania de Transporte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania de Transporte 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 Compania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania de Transporte has no effect on the direction of Merck i.e., Merck and Compania go up and down completely randomly.
Pair Corralation between Merck and Compania
Assuming the 90 days trading horizon Merck Company is expected to under-perform the Compania. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.0 times less risky than Compania. The stock trades about -0.17 of its potential returns per unit of risk. The Compania de Transporte is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 205,000 in Compania de Transporte on August 31, 2024 and sell it today you would earn a total of 17,500 from holding Compania de Transporte or generate 8.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Merck Company vs. Compania de Transporte
Performance |
| Timeline |
| Merck Company |
| Compania de Transporte |
Merck and Compania Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Compania
The main advantage of trading using opposite Merck and Compania positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Compania 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 Compania will offset losses from the drop in Compania's long position.| Merck vs. Compania de Transporte | Merck vs. Harmony Gold Mining | Merck vs. United States Steel | Merck vs. Transportadora de Gas |
| Compania vs. Agrometal SAI | Compania vs. Telecom Argentina | Compania vs. Harmony Gold Mining | Compania vs. United States Steel |
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 CEOs Directory module to screen CEOs from public companies around the world.
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