Correlation Between Merck and TotalEnergies
Can any of the company-specific risk be diversified away by investing in both Merck and TotalEnergies 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 TotalEnergies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and TotalEnergies SE, you can compare the effects of market volatilities on Merck and TotalEnergies 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 TotalEnergies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and TotalEnergies.
Diversification Opportunities for Merck and TotalEnergies
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and TotalEnergies is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and TotalEnergies SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TotalEnergies SE 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 TotalEnergies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TotalEnergies SE has no effect on the direction of Merck i.e., Merck and TotalEnergies go up and down completely randomly.
Pair Corralation between Merck and TotalEnergies
Considering the 90-day investment horizon Merck Company is expected to under-perform the TotalEnergies. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.43 times less risky than TotalEnergies. The stock trades about -0.22 of its potential returns per unit of risk. The TotalEnergies SE is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 6,350 in TotalEnergies SE on August 24, 2024 and sell it today you would lose (286.00) from holding TotalEnergies SE or give up 4.5% 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. TotalEnergies SE
Performance |
| Timeline |
| Merck Company |
| TotalEnergies SE |
Merck and TotalEnergies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and TotalEnergies
The main advantage of trading using opposite Merck and TotalEnergies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, TotalEnergies 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 TotalEnergies will offset losses from the drop in TotalEnergies' long position.| Merck vs. Johnson Johnson | Merck vs. Small Cap Core | Merck vs. Freedom Holding Corp | Merck vs. Gfl Environmental Holdings |
| TotalEnergies vs. Eni SpA | TotalEnergies vs. MOL PLC ADR | TotalEnergies vs. PetroChina Co Ltd | TotalEnergies vs. Equinor ASA |
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 Stocks Directory module to find actively traded stocks across global markets.
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