Correlation Between Merck and Flying Nickel
Can any of the company-specific risk be diversified away by investing in both Merck and Flying Nickel 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 Flying Nickel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Flying Nickel Mining, you can compare the effects of market volatilities on Merck and Flying Nickel 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 Flying Nickel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Flying Nickel.
Diversification Opportunities for Merck and Flying Nickel
-0.05 | Correlation Coefficient |
Good diversification
The 3 months correlation between Merck and Flying is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Flying Nickel Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flying Nickel Mining 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 Flying Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flying Nickel Mining has no effect on the direction of Merck i.e., Merck and Flying Nickel go up and down completely randomly.
Pair Corralation between Merck and Flying Nickel
Considering the 90-day investment horizon Merck Company is expected to under-perform the Flying Nickel. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 17.13 times less risky than Flying Nickel. The stock trades about -0.05 of its potential returns per unit of risk. The Flying Nickel Mining is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 3.00 in Flying Nickel Mining on August 31, 2024 and sell it today you would earn a total of 1.99 from holding Flying Nickel Mining or generate 66.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Flying Nickel Mining
Performance |
| Timeline |
| Merck Company |
| Flying Nickel Mining |
Merck and Flying Nickel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Flying Nickel
The main advantage of trading using opposite Merck and Flying Nickel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Flying Nickel 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 Flying Nickel will offset losses from the drop in Flying Nickel's long position.The idea behind Merck Company and Flying Nickel Mining 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.| Flying Nickel vs. Liontown Resources Limited | Flying Nickel vs. ATT Inc | Flying Nickel vs. Merck Company | Flying Nickel vs. Walt Disney |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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