Correlation Between Merck and Core Lithium
Can any of the company-specific risk be diversified away by investing in both Merck and Core Lithium 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 Core Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Core Lithium, you can compare the effects of market volatilities on Merck and Core Lithium 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 Core Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Core Lithium.
Diversification Opportunities for Merck and Core Lithium
-0.25 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Core is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Core Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Lithium 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 Core Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Lithium has no effect on the direction of Merck i.e., Merck and Core Lithium go up and down completely randomly.
Pair Corralation between Merck and Core Lithium
Considering the 90-day investment horizon Merck Company is expected to generate 0.16 times more return on investment than Core Lithium. However, Merck Company is 6.15 times less risky than Core Lithium. It trades about 0.0 of its potential returns per unit of risk. Core Lithium is currently generating about -0.14 per unit of risk. If you would invest 10,188 in Merck Company on September 2, 2024 and sell it today you would lose (24.00) from holding Merck Company or give up 0.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Core Lithium
Performance |
| Timeline |
| Merck Company |
| Core Lithium |
Merck and Core Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Core Lithium
The main advantage of trading using opposite Merck and Core Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Core Lithium 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 Core Lithium will offset losses from the drop in Core Lithium's long position.The idea behind Merck Company and Core Lithium 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.| Core Lithium vs. Macmahon Holdings Limited | Core Lithium vs. Prime Meridian Resources | Core Lithium vs. International Lithium Corp | Core Lithium vs. Hudson Resources |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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