Correlation Between Merck and Dorian LPG
Can any of the company-specific risk be diversified away by investing in both Merck and Dorian LPG 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 Dorian LPG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Dorian LPG, you can compare the effects of market volatilities on Merck and Dorian LPG 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 Dorian LPG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Dorian LPG.
Diversification Opportunities for Merck and Dorian LPG
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Merck and Dorian is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Dorian LPG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorian LPG 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 Dorian LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorian LPG has no effect on the direction of Merck i.e., Merck and Dorian LPG go up and down completely randomly.
Pair Corralation between Merck and Dorian LPG
Considering the 90-day investment horizon Merck Company is expected to generate 0.63 times more return on investment than Dorian LPG. However, Merck Company is 1.59 times less risky than Dorian LPG. It trades about -0.16 of its potential returns per unit of risk. Dorian LPG is currently generating about -0.27 per unit of risk. If you would invest 10,638 in Merck Company on August 24, 2024 and sell it today you would lose (514.00) from holding Merck Company or give up 4.83% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Dorian LPG
Performance |
| Timeline |
| Merck Company |
| Dorian LPG |
Merck and Dorian LPG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Dorian LPG
The main advantage of trading using opposite Merck and Dorian LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Dorian LPG 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 Dorian LPG will offset losses from the drop in Dorian LPG's long position.The idea behind Merck Company and Dorian LPG 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.| Dorian LPG vs. DHT Holdings | Dorian LPG vs. Teekay | Dorian LPG vs. HUMANA INC | Dorian LPG vs. Aquagold International |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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