Correlation Between Central Puerto and Merck

Can any of the company-specific risk be diversified away by investing in both Central Puerto and Merck 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 Central Puerto and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Puerto SA and Merck Company, you can compare the effects of market volatilities on Central Puerto and Merck 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 Central Puerto with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Puerto and Merck.

Diversification Opportunities for Central Puerto and Merck

-0.49

Correlation Coefficient

Central Puerto  Merck

Very good diversification

The 3 months correlation between Central and Merck is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Central Puerto SA and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Central Puerto 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 Central Puerto SA are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Central Puerto i.e., Central Puerto and Merck go up and down completely randomly.

Pair Corralation between Central Puerto and Merck

Assuming the 90 days trading horizon Central Puerto SA is expected to under-perform the Merck. In addition to that, Central Puerto is 2.6 times more volatile than Merck Company. It trades about -0.03 of its total potential returns per unit of risk. Merck Company is currently generating about 0.08 per unit of volatility. If you would invest  2,290,000  in Merck Company on October 20, 2024 and sell it today you would earn a total of  42,500  from holding Merck Company or generate 1.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Central Puerto SA  vs.  Merck Company

Central Puerto SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Puerto SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Central Puerto sustained solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Central Puerto and Merck

The main advantage of trading using opposite Central Puerto and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Puerto position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.

The idea behind Central Puerto SA and Merck Company 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.