Correlation Between Merck and Pampa Energia

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

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

Diversification Opportunities for Merck and Pampa Energia

0.53

Correlation Coefficient

Merck  Pampa Energia

Very weak diversification

The 3 months correlation between Merck and Pampa is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Pampa Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pampa Energia SA 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 Pampa Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pampa Energia SA has no effect on the direction of Merck i.e., Merck and Pampa Energia go up and down completely randomly.

Pair Corralation between Merck and Pampa Energia

Assuming the 90 days trading horizon Merck Company is expected to under-perform the Pampa Energia. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.52 times less risky than Pampa Energia. The stock trades about -0.06 of its potential returns per unit of risk. The Pampa Energia SA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  356,000  in Pampa Energia SA on November 19, 2024 and sell it today you would earn a total of  38,000  from holding Pampa Energia SA or generate 10.67% return on investment over 90 days.

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

Merck Company  vs.  Pampa Energia SA

Merck Company

Risk-Adjusted Performance

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.

Pampa Energia SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pampa Energia SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pampa Energia may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Merck and Pampa Energia

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

The idea behind Merck Company and Pampa Energia SA 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.