Correlation Between Merck and Sienna Resources
Can any of the company-specific risk be diversified away by investing in both Merck and Sienna Resources 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 Sienna Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Sienna Resources, you can compare the effects of market volatilities on Merck and Sienna Resources 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 Sienna Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Sienna Resources.
Diversification Opportunities for Merck and Sienna Resources
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Sienna is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Sienna Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sienna 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 Sienna Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sienna Resources has no effect on the direction of Merck i.e., Merck and Sienna Resources go up and down completely randomly.
Pair Corralation between Merck and Sienna Resources
Considering the 90-day investment horizon Merck is expected to generate 34.09 times less return on investment than Sienna Resources. But when comparing it to its historical volatility, Merck Company is 6.65 times less risky than Sienna Resources. It trades about 0.01 of its potential returns per unit of risk. Sienna Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3.00 in Sienna Resources on August 30, 2024 and sell it today you would lose (0.80) from holding Sienna Resources or give up 26.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Sienna Resources
Performance |
| Timeline |
| Merck Company |
| Sienna Resources |
Merck and Sienna Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Sienna Resources
The main advantage of trading using opposite Merck and Sienna Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Sienna Resources 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 Sienna Resources will offset losses from the drop in Sienna Resources' long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
| Sienna Resources vs. Norra Metals Corp | Sienna Resources vs. E79 Resources Corp | Sienna Resources vs. Voltage Metals Corp | Sienna Resources vs. Cantex Mine Development |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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