Correlation Between Merck and Hop On
Can any of the company-specific risk be diversified away by investing in both Merck and Hop On 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 Hop On into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Hop On Inc, you can compare the effects of market volatilities on Merck and Hop On 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 Hop On. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Hop On.
Diversification Opportunities for Merck and Hop On
Modest diversification
The 3 months correlation between Merck and Hop is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Hop On Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hop On Inc 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 Hop On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hop On Inc has no effect on the direction of Merck i.e., Merck and Hop On go up and down completely randomly.
Pair Corralation between Merck and Hop On
Considering the 90-day investment horizon Merck Company is expected to under-perform the Hop On. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 5.9 times less risky than Hop On. The stock trades about -0.12 of its potential returns per unit of risk. The Hop On Inc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 0.06 in Hop On Inc on December 1, 2024 and sell it today you would lose (0.01) from holding Hop On Inc or give up 16.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Hop On Inc
Performance |
| Timeline |
| Merck Company |
| Hop On Inc |
Merck and Hop On Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Hop On
The main advantage of trading using opposite Merck and Hop On positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Hop On 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 Hop On will offset losses from the drop in Hop On's long position.The idea behind Merck Company and Hop On Inc 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.| Hop On vs. Wialan Technologies | Hop On vs. Electronic Systems Technology | Hop On vs. AdvanceTC Limited | Hop On vs. Metalert |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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