Correlation Between Merck and Lake Resources
Can any of the company-specific risk be diversified away by investing in both Merck and Lake 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 Lake 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 Lake Resources NL, you can compare the effects of market volatilities on Merck and Lake 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 Lake Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Lake Resources.
Diversification Opportunities for Merck and Lake Resources
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Lake is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Lake Resources NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lake Resources NL 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 Lake Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lake Resources NL has no effect on the direction of Merck i.e., Merck and Lake Resources go up and down completely randomly.
Pair Corralation between Merck and Lake Resources
Considering the 90-day investment horizon Merck Company is expected to generate 0.19 times more return on investment than Lake Resources. However, Merck Company is 5.24 times less risky than Lake Resources. It trades about 0.0 of its potential returns per unit of risk. Lake Resources NL is currently generating about -0.3 per unit of risk. If you would invest 10,188 in Merck Company on September 2, 2024 and sell it today you would lose (24.00) from holding Merck Company or give up 0.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Lake Resources NL
Performance |
| Timeline |
| Merck Company |
| Lake Resources NL |
Merck and Lake Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Lake Resources
The main advantage of trading using opposite Merck and Lake Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Lake 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 Lake Resources will offset losses from the drop in Lake Resources' long position.The idea behind Merck Company and Lake Resources NL 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.| Lake Resources vs. Eldorado Gold Corp | Lake Resources vs. BCE Inc | Lake Resources vs. Western Digital | Lake Resources vs. Stratasys |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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