Correlation Between Merck and Ambase Corp

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

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

Diversification Opportunities for Merck and Ambase Corp

0.41

Correlation Coefficient

Merck  Ambase Corp

Very weak diversification

The 3 months correlation between Merck and Ambase is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Ambase Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambase Corp 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 Ambase Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambase Corp has no effect on the direction of Merck i.e., Merck and Ambase Corp go up and down completely randomly.

Pair Corralation between Merck and Ambase Corp

Considering the 90-day investment horizon Merck Company is expected to under-perform the Ambase Corp. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.87 times less risky than Ambase Corp. The stock trades about -0.1 of its potential returns per unit of risk. The Ambase Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Ambase Corp on December 27, 2024 and sell it today you would lose (1.00) from holding Ambase Corp or give up 3.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Merck Company  vs.  Ambase Corp

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 abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Ambase Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ambase Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Ambase Corp is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Merck and Ambase Corp

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

The idea behind Merck Company and Ambase Corp 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.