Correlation Between Merck and Algoma Central
Can any of the company-specific risk be diversified away by investing in both Merck and Algoma Central 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 Algoma Central into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Algoma Central, you can compare the effects of market volatilities on Merck and Algoma Central 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 Algoma Central. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Algoma Central.
Diversification Opportunities for Merck and Algoma Central
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Algoma is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Algoma Central in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Central 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 Algoma Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Central has no effect on the direction of Merck i.e., Merck and Algoma Central go up and down completely randomly.
Pair Corralation between Merck and Algoma Central
Considering the 90-day investment horizon Merck Company is expected to under-perform the Algoma Central. In addition to that, Merck is 1.22 times more volatile than Algoma Central. It trades about -0.16 of its total potential returns per unit of risk. Algoma Central is currently generating about 0.03 per unit of volatility. If you would invest 1,075 in Algoma Central on September 3, 2024 and sell it today you would earn a total of 15.00 from holding Algoma Central or generate 1.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Algoma Central
Performance |
| Timeline |
| Merck Company |
| Algoma Central |
Merck and Algoma Central Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Algoma Central
The main advantage of trading using opposite Merck and Algoma Central positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Algoma Central 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 Algoma Central will offset losses from the drop in Algoma Central's long position.| Merck vs. Pfizer Inc | Merck vs. Johnson Johnson | Merck vs. Highway Holdings Limited | Merck vs. QCR Holdings |
| Algoma Central vs. TOMI Environmental Solutions | Algoma Central vs. SCOR PK | Algoma Central vs. HUMANA INC | Algoma Central vs. Aquagold International |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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