Correlation Between Merck KGaA and NorAm Drilling
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and NorAm Drilling 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 KGaA and NorAm Drilling into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck KGaA and NorAm Drilling AS, you can compare the effects of market volatilities on Merck KGaA and NorAm Drilling 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 KGaA with a short position of NorAm Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and NorAm Drilling.
Diversification Opportunities for Merck KGaA and NorAm Drilling
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Merck and NorAm is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and NorAm Drilling AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NorAm Drilling AS and Merck KGaA 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 KGaA are associated (or correlated) with NorAm Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NorAm Drilling AS has no effect on the direction of Merck KGaA i.e., Merck KGaA and NorAm Drilling go up and down completely randomly.
Pair Corralation between Merck KGaA and NorAm Drilling
Assuming the 90 days trading horizon Merck KGaA is expected to under-perform the NorAm Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Merck KGaA is 3.04 times less risky than NorAm Drilling. The stock trades about -0.02 of its potential returns per unit of risk. The NorAm Drilling AS is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 350.00 in NorAm Drilling AS on September 3, 2024 and sell it today you would lose (60.00) from holding NorAm Drilling AS or give up 17.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA vs. NorAm Drilling AS
Performance |
| Timeline |
| Merck KGaA |
| NorAm Drilling AS |
Merck KGaA and NorAm Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and NorAm Drilling
The main advantage of trading using opposite Merck KGaA and NorAm Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, NorAm Drilling 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 NorAm Drilling will offset losses from the drop in NorAm Drilling's long position.| Merck KGaA vs. Gol Intelligent Airlines | Merck KGaA vs. BJs Wholesale Club | Merck KGaA vs. Fast Retailing Co | Merck KGaA vs. JAPAN AIRLINES |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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