Correlation Between Merck and Premium Nickel
Can any of the company-specific risk be diversified away by investing in both Merck and Premium Nickel 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 Premium Nickel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Premium Nickel Resources, you can compare the effects of market volatilities on Merck and Premium Nickel 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 Premium Nickel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Premium Nickel.
Diversification Opportunities for Merck and Premium Nickel
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Premium is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Premium Nickel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Nickel Resources 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 Premium Nickel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Nickel Resources has no effect on the direction of Merck i.e., Merck and Premium Nickel go up and down completely randomly.
Pair Corralation between Merck and Premium Nickel
Considering the 90-day investment horizon Merck Company is expected to generate 0.28 times more return on investment than Premium Nickel. However, Merck Company is 3.61 times less risky than Premium Nickel. It trades about -0.03 of its potential returns per unit of risk. Premium Nickel Resources is currently generating about -0.03 per unit of risk. If you would invest 11,209 in Merck Company on December 1, 2024 and sell it today you would lose (1,984) from holding Merck Company or give up 17.7% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.57% |
| Values | Daily Returns |
Merck Company vs. Premium Nickel Resources
Performance |
| Timeline |
| Merck Company |
| Premium Nickel Resources |
Risk-Adjusted Performance
Very Weak
Weak | Strong |
Merck and Premium Nickel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Premium Nickel
The main advantage of trading using opposite Merck and Premium Nickel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Premium Nickel 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 Premium Nickel will offset losses from the drop in Premium Nickel's long position.The idea behind Merck Company and Premium Nickel Resources 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.| Premium Nickel vs. Molson Coors Brewing | Premium Nickel vs. Anheuser Busch Inbev | Premium Nickel vs. Compania Cervecerias Unidas | Premium Nickel vs. Willamette Valley Vineyards |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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