Correlation Between Merck and Sotera Health
Can any of the company-specific risk be diversified away by investing in both Merck and Sotera Health 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 Sotera Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Sotera Health Co, you can compare the effects of market volatilities on Merck and Sotera Health 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 Sotera Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Sotera Health.
Diversification Opportunities for Merck and Sotera Health
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Sotera is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Sotera Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotera Health 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 Sotera Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotera Health has no effect on the direction of Merck i.e., Merck and Sotera Health go up and down completely randomly.
Pair Corralation between Merck and Sotera Health
Considering the 90-day investment horizon Merck Company is expected to under-perform the Sotera Health. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.59 times less risky than Sotera Health. The stock trades about -0.1 of its potential returns per unit of risk. The Sotera Health Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,146 in Sotera Health Co on August 31, 2024 and sell it today you would earn a total of 164.00 from holding Sotera Health Co or generate 14.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Sotera Health Co
Performance |
| Timeline |
| Merck Company |
| Sotera Health |
Merck and Sotera Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Sotera Health
The main advantage of trading using opposite Merck and Sotera Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Sotera Health 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 Sotera Health will offset losses from the drop in Sotera Health's long position.The idea behind Merck Company and Sotera Health Co 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.| Sotera Health vs. Qiagen NV | Sotera Health vs. Aclaris Therapeutics | Sotera Health vs. Neogen | Sotera Health vs. RadNet Inc |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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