Correlation Between DAIRY FARM and Merck

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

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

Diversification Opportunities for DAIRY FARM and Merck

-0.32

Correlation Coefficient

DAIRY FARM  Merck

Very good diversification

The 3 months correlation between DAIRY and Merck is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding DAIRY FARM INTL and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and DAIRY FARM 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 DAIRY FARM INTL 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 DAIRY FARM i.e., DAIRY FARM and Merck go up and down completely randomly.

Pair Corralation between DAIRY FARM and Merck

Assuming the 90 days trading horizon DAIRY FARM INTL is expected to generate 1.4 times more return on investment than Merck. However, DAIRY FARM is 1.4 times more volatile than Merck Company. It trades about 0.02 of its potential returns per unit of risk. Merck Company is currently generating about -0.01 per unit of risk. If you would invest  200.00  in DAIRY FARM INTL on October 25, 2024 and sell it today you would earn a total of  10.00  from holding DAIRY FARM INTL or generate 5.0% return on investment over 90 days.

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

DAIRY FARM INTL  vs.  Merck Company

DAIRY FARM INTL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DAIRY FARM INTL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, DAIRY FARM is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with DAIRY FARM and Merck

The main advantage of trading using opposite DAIRY FARM and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAIRY FARM 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 DAIRY FARM INTL 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.