Correlation Between Merck and Nokian Renkaat
Can any of the company-specific risk be diversified away by investing in both Merck and Nokian Renkaat 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 Nokian Renkaat into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Nokian Renkaat Oyj, you can compare the effects of market volatilities on Merck and Nokian Renkaat 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 Nokian Renkaat. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Nokian Renkaat.
Diversification Opportunities for Merck and Nokian Renkaat
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Nokian is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Nokian Renkaat Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokian Renkaat Oyj 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 Nokian Renkaat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokian Renkaat Oyj has no effect on the direction of Merck i.e., Merck and Nokian Renkaat go up and down completely randomly.
Pair Corralation between Merck and Nokian Renkaat
Considering the 90-day investment horizon Merck is expected to generate 1.54 times less return on investment than Nokian Renkaat. But when comparing it to its historical volatility, Merck Company is 1.45 times less risky than Nokian Renkaat. It trades about 0.01 of its potential returns per unit of risk. Nokian Renkaat Oyj is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 807.00 in Nokian Renkaat Oyj on September 4, 2024 and sell it today you would lose (7.00) from holding Nokian Renkaat Oyj or give up 0.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 80.97% |
| Values | Daily Returns |
Merck Company vs. Nokian Renkaat Oyj
Performance |
| Timeline |
| Merck Company |
| Nokian Renkaat Oyj |
Merck and Nokian Renkaat Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Nokian Renkaat
The main advantage of trading using opposite Merck and Nokian Renkaat positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Nokian Renkaat 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 Nokian Renkaat will offset losses from the drop in Nokian Renkaat's long position.| Merck vs. Crinetics Pharmaceuticals | Merck vs. Enanta Pharmaceuticals | Merck vs. Amicus Therapeutics | Merck vs. Connect Biopharma Holdings |
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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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