Correlation Between Merck and Medipharm Labs
Can any of the company-specific risk be diversified away by investing in both Merck and Medipharm Labs 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 Medipharm Labs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Medipharm Labs Corp, you can compare the effects of market volatilities on Merck and Medipharm Labs 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 Medipharm Labs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Medipharm Labs.
Diversification Opportunities for Merck and Medipharm Labs
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Medipharm is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Medipharm Labs Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medipharm Labs Corp 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 Medipharm Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medipharm Labs Corp has no effect on the direction of Merck i.e., Merck and Medipharm Labs go up and down completely randomly.
Pair Corralation between Merck and Medipharm Labs
Considering the 90-day investment horizon Merck Company is expected to under-perform the Medipharm Labs. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.33 times less risky than Medipharm Labs. The stock trades about -0.06 of its potential returns per unit of risk. The Medipharm Labs Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 4.90 in Medipharm Labs Corp on September 1, 2024 and sell it today you would lose (0.20) from holding Medipharm Labs Corp or give up 4.08% 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. Medipharm Labs Corp
Performance |
| Timeline |
| Merck Company |
| Medipharm Labs Corp |
Merck and Medipharm Labs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Medipharm Labs
The main advantage of trading using opposite Merck and Medipharm Labs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Medipharm Labs 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 Medipharm Labs will offset losses from the drop in Medipharm Labs' long position.The idea behind Merck Company and Medipharm Labs 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.| Medipharm Labs vs. Holloman Energy Corp | Medipharm Labs vs. cbdMD Inc | Medipharm Labs vs. Evolus Inc | Medipharm Labs vs. CV Sciences |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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