Correlation Between Merck and LithiumBank Resources
Can any of the company-specific risk be diversified away by investing in both Merck and LithiumBank Resources 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 LithiumBank Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and LithiumBank Resources Corp, you can compare the effects of market volatilities on Merck and LithiumBank Resources 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 LithiumBank Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and LithiumBank Resources.
Diversification Opportunities for Merck and LithiumBank Resources
0.18 | Correlation Coefficient |
Average diversification
The 3 months correlation between Merck and LithiumBank is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and LithiumBank Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LithiumBank Resources 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 LithiumBank Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LithiumBank Resources has no effect on the direction of Merck i.e., Merck and LithiumBank Resources go up and down completely randomly.
Pair Corralation between Merck and LithiumBank Resources
Considering the 90-day investment horizon Merck Company is expected to under-perform the LithiumBank Resources. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.26 times less risky than LithiumBank Resources. The stock trades about -0.16 of its potential returns per unit of risk. The LithiumBank Resources Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 16.00 in LithiumBank Resources Corp on November 29, 2024 and sell it today you would earn a total of 3.00 from holding LithiumBank Resources Corp or generate 18.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. LithiumBank Resources Corp
Performance |
| Timeline |
| Merck Company |
| LithiumBank Resources |
Merck and LithiumBank Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and LithiumBank Resources
The main advantage of trading using opposite Merck and LithiumBank Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, LithiumBank Resources 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 LithiumBank Resources will offset losses from the drop in LithiumBank Resources' long position.The idea behind Merck Company and LithiumBank Resources 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.| LithiumBank Resources vs. Qubec Nickel Corp | LithiumBank Resources vs. IGO Limited | LithiumBank Resources vs. Focus Graphite | LithiumBank Resources vs. Mineral Res |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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