Correlation Between Merck and PrairieSky Royalty
Can any of the company-specific risk be diversified away by investing in both Merck and PrairieSky Royalty 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 PrairieSky Royalty into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and PrairieSky Royalty, you can compare the effects of market volatilities on Merck and PrairieSky Royalty 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 PrairieSky Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and PrairieSky Royalty.
Diversification Opportunities for Merck and PrairieSky Royalty
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and PrairieSky is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and PrairieSky Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrairieSky Royalty 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 PrairieSky Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrairieSky Royalty has no effect on the direction of Merck i.e., Merck and PrairieSky Royalty go up and down completely randomly.
Pair Corralation between Merck and PrairieSky Royalty
Considering the 90-day investment horizon Merck Company is expected to under-perform the PrairieSky Royalty. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.08 times less risky than PrairieSky Royalty. The stock trades about -0.11 of its potential returns per unit of risk. The PrairieSky Royalty is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,914 in PrairieSky Royalty on September 1, 2024 and sell it today you would earn a total of 197.00 from holding PrairieSky Royalty or generate 10.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Merck Company vs. PrairieSky Royalty
Performance |
| Timeline |
| Merck Company |
| PrairieSky Royalty |
Merck and PrairieSky Royalty Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and PrairieSky Royalty
The main advantage of trading using opposite Merck and PrairieSky Royalty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, PrairieSky Royalty 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 PrairieSky Royalty will offset losses from the drop in PrairieSky Royalty's long position.The idea behind Merck Company and PrairieSky Royalty 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.| PrairieSky Royalty vs. Petroleo Brasileiro Petrobras | PrairieSky Royalty vs. Equinor ASA ADR | PrairieSky Royalty vs. Eni SpA ADR | PrairieSky Royalty vs. YPF Sociedad Anonima |
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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