Correlation Between Merck and Electric Power
Can any of the company-specific risk be diversified away by investing in both Merck and Electric Power 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 Electric Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Electric Power Development, you can compare the effects of market volatilities on Merck and Electric Power 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 Electric Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Electric Power.
Diversification Opportunities for Merck and Electric Power
-0.79 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Electric is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Electric Power Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electric Power Devel 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 Electric Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electric Power Devel has no effect on the direction of Merck i.e., Merck and Electric Power go up and down completely randomly.
Pair Corralation between Merck and Electric Power
Considering the 90-day investment horizon Merck Company is expected to under-perform the Electric Power. In addition to that, Merck is 1.11 times more volatile than Electric Power Development. It trades about -0.16 of its total potential returns per unit of risk. Electric Power Development is currently generating about 0.04 per unit of volatility. If you would invest 1,680 in Electric Power Development on September 2, 2024 and sell it today you would earn a total of 40.00 from holding Electric Power Development or generate 2.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Electric Power Development
Performance |
| Timeline |
| Merck Company |
| Electric Power Devel |
Merck and Electric Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Electric Power
The main advantage of trading using opposite Merck and Electric Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Electric Power 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 Electric Power will offset losses from the drop in Electric Power's long position.The idea behind Merck Company and Electric Power Development 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.| Electric Power vs. Orsted AS | Electric Power vs. Innergex Renewable Energy | Electric Power vs. Clearway Energy | Electric Power vs. Fusion Fuel Green |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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