Correlation Between Merck and Ceylon Graphite
Can any of the company-specific risk be diversified away by investing in both Merck and Ceylon Graphite 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 Ceylon Graphite into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Ceylon Graphite Corp, you can compare the effects of market volatilities on Merck and Ceylon Graphite 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 Ceylon Graphite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Ceylon Graphite.
Diversification Opportunities for Merck and Ceylon Graphite
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Ceylon is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Ceylon Graphite Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceylon Graphite Corp 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 Ceylon Graphite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceylon Graphite Corp has no effect on the direction of Merck i.e., Merck and Ceylon Graphite go up and down completely randomly.
Pair Corralation between Merck and Ceylon Graphite
Considering the 90-day investment horizon Merck is expected to generate 11.18 times less return on investment than Ceylon Graphite. But when comparing it to its historical volatility, Merck Company is 7.14 times less risky than Ceylon Graphite. It trades about 0.01 of its potential returns per unit of risk. Ceylon Graphite Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2.77 in Ceylon Graphite Corp on September 2, 2024 and sell it today you would lose (1.48) from holding Ceylon Graphite Corp or give up 53.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Merck Company vs. Ceylon Graphite Corp
Performance |
| Timeline |
| Merck Company |
| Ceylon Graphite Corp |
Merck and Ceylon Graphite Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Ceylon Graphite
The main advantage of trading using opposite Merck and Ceylon Graphite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Ceylon Graphite 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 Ceylon Graphite will offset losses from the drop in Ceylon Graphite's long position.The idea behind Merck Company and Ceylon Graphite Corp 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.| Ceylon Graphite vs. Argent Minerals Limited | Ceylon Graphite vs. Edison Cobalt Corp | Ceylon Graphite vs. Champion Bear Resources | Ceylon Graphite vs. Ascendant 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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