Correlation Between Merck and Medical Marijuana
Can any of the company-specific risk be diversified away by investing in both Merck and Medical Marijuana 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 Medical Marijuana into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Medical Marijuana I, you can compare the effects of market volatilities on Merck and Medical Marijuana 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 Medical Marijuana. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Medical Marijuana.
Diversification Opportunities for Merck and Medical Marijuana
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and Medical is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Medical Marijuana I in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medical Marijuana 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 Medical Marijuana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medical Marijuana has no effect on the direction of Merck i.e., Merck and Medical Marijuana go up and down completely randomly.
Pair Corralation between Merck and Medical Marijuana
Considering the 90-day investment horizon Merck Company is expected to generate 0.1 times more return on investment than Medical Marijuana. However, Merck Company is 10.07 times less risky than Medical Marijuana. It trades about -0.03 of its potential returns per unit of risk. Medical Marijuana I is currently generating about -0.07 per unit of risk. If you would invest 10,423 in Merck Company on August 29, 2024 and sell it today you would lose (111.00) from holding Merck Company or give up 1.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Medical Marijuana I
Performance |
| Timeline |
| Merck Company |
| Medical Marijuana |
Merck and Medical Marijuana Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Medical Marijuana
The main advantage of trading using opposite Merck and Medical Marijuana positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Medical Marijuana 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 Medical Marijuana will offset losses from the drop in Medical Marijuana's long position.| Merck vs. Pharvaris BV | Merck vs. Brinker International | Merck vs. Alcoa Corp | Merck vs. Direxion Daily FTSE |
| Medical Marijuana vs. American Green | Medical Marijuana vs. North American Cannabis | Medical Marijuana vs. Marijuana | Medical Marijuana vs. Rimrock Gold Corp |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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