Correlation Between Merck and AmmPower Corp

Can any of the company-specific risk be diversified away by investing in both Merck and AmmPower 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 AmmPower 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 AmmPower Corp, you can compare the effects of market volatilities on Merck and AmmPower 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 AmmPower Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and AmmPower Corp.

Diversification Opportunities for Merck and AmmPower Corp

-0.73

Correlation Coefficient

Merck  AmmPower Corp

Pay attention - limited upside

The 3 months correlation between Merck and AmmPower is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and AmmPower Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AmmPower 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 AmmPower Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AmmPower Corp has no effect on the direction of Merck i.e., Merck and AmmPower Corp go up and down completely randomly.

Pair Corralation between Merck and AmmPower Corp

Considering the 90-day investment horizon Merck is expected to generate 55.68 times less return on investment than AmmPower Corp. But when comparing it to its historical volatility, Merck Company is 8.42 times less risky than AmmPower Corp. It trades about 0.01 of its potential returns per unit of risk. AmmPower Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.70  in AmmPower Corp on September 4, 2024 and sell it today you would lose (0.56) from holding AmmPower Corp or give up 15.14% of portfolio value over 90 days.

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

Merck Company  vs.  AmmPower Corp

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

AmmPower Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AmmPower Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, AmmPower Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and AmmPower Corp

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

The idea behind Merck Company and AmmPower 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.