Correlation Between Merck and Elixinol Wellness

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

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

Diversification Opportunities for Merck and Elixinol Wellness

-0.49

Correlation Coefficient

Merck  Elixinol Wellness

Very good diversification

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

Pair Corralation between Merck and Elixinol Wellness

Assuming the 90 days horizon Merck Company is expected to under-perform the Elixinol Wellness. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 49.54 times less risky than Elixinol Wellness. The stock trades about -0.22 of its potential returns per unit of risk. The Elixinol Wellness Limited is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  0.40  in Elixinol Wellness Limited on September 26, 2024 and sell it today you would earn a total of  1.80  from holding Elixinol Wellness Limited or generate 450.0% return on investment over 90 days.

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

Merck Company  vs.  Elixinol Wellness Limited

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Elixinol Wellness

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elixinol Wellness Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Elixinol Wellness reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Elixinol Wellness

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

The idea behind Merck Company and Elixinol Wellness Limited 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.