Correlation Between Merck and ENTERPRISE

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Can any of the company-specific risk be diversified away by investing in both Merck and ENTERPRISE 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 ENTERPRISE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and ENTERPRISE PRODS OPER, you can compare the effects of market volatilities on Merck and ENTERPRISE 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 ENTERPRISE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ENTERPRISE.

Diversification Opportunities for Merck and ENTERPRISE

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Merck and ENTERPRISE is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ENTERPRISE PRODS OPER in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENTERPRISE PRODS OPER 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 ENTERPRISE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENTERPRISE PRODS OPER has no effect on the direction of Merck i.e., Merck and ENTERPRISE go up and down completely randomly.

Pair Corralation between Merck and ENTERPRISE

Considering the 90-day investment horizon Merck Company is expected to generate 1.51 times more return on investment than ENTERPRISE. However, Merck is 1.51 times more volatile than ENTERPRISE PRODS OPER. It trades about 0.01 of its potential returns per unit of risk. ENTERPRISE PRODS OPER is currently generating about 0.01 per unit of risk. If you would invest  10,315  in Merck Company on August 30, 2024 and sell it today you would lose (3.00) from holding Merck Company or give up 0.03% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy97.98%
ValuesDaily Returns

Merck Company  vs.  ENTERPRISE PRODS OPER

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in December 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
ENTERPRISE PRODS OPER 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days ENTERPRISE PRODS OPER has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, ENTERPRISE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck and ENTERPRISE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and ENTERPRISE

The main advantage of trading using opposite Merck and ENTERPRISE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, ENTERPRISE 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 ENTERPRISE will offset losses from the drop in ENTERPRISE's long position.
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The idea behind Merck Company and ENTERPRISE PRODS OPER 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.
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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