Correlation Between Merck and Equinor ASA
Can any of the company-specific risk be diversified away by investing in both Merck and Equinor ASA 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 Equinor ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Equinor ASA ADR, you can compare the effects of market volatilities on Merck and Equinor ASA 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 Equinor ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Equinor ASA.
Diversification Opportunities for Merck and Equinor ASA
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Merck and Equinor is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR 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 Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Merck i.e., Merck and Equinor ASA go up and down completely randomly.
Pair Corralation between Merck and Equinor ASA
Considering the 90-day investment horizon Merck Company is expected to generate 0.76 times more return on investment than Equinor ASA. However, Merck Company is 1.31 times less risky than Equinor ASA. It trades about 0.01 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about -0.03 per unit of risk. If you would invest 10,164 in Merck Company on September 1, 2024 and sell it today you would earn a total of 0.00 from holding Merck Company or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Equinor ASA ADR
Performance |
| Timeline |
| Merck Company |
| Equinor ASA ADR |
Merck and Equinor ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Equinor ASA
The main advantage of trading using opposite Merck and Equinor ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Equinor ASA 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 Equinor ASA will offset losses from the drop in Equinor ASA's long position.The idea behind Merck Company and Equinor ASA ADR 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.| Equinor ASA vs. Shell PLC ADR | Equinor ASA vs. BP PLC ADR | Equinor ASA vs. Eni SpA ADR | Equinor ASA vs. Galp Energa |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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