Correlation Between Merck and Baroyeca Gold

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

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

Diversification Opportunities for Merck and Baroyeca Gold

0.52

Correlation Coefficient

Merck  Baroyeca Gold

Very weak diversification

The 3 months correlation between Merck and Baroyeca is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Baroyeca Gold Silver in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baroyeca Gold Silver 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 Baroyeca Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baroyeca Gold Silver has no effect on the direction of Merck i.e., Merck and Baroyeca Gold go up and down completely randomly.

Pair Corralation between Merck and Baroyeca Gold

Considering the 90-day investment horizon Merck Company is expected to under-perform the Baroyeca Gold. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 6.22 times less risky than Baroyeca Gold. The stock trades about -0.15 of its potential returns per unit of risk. The Baroyeca Gold Silver is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1.70  in Baroyeca Gold Silver on August 31, 2024 and sell it today you would lose (0.28) from holding Baroyeca Gold Silver or give up 16.47% of portfolio value over 90 days.

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

Merck Company  vs.  Baroyeca Gold Silver

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 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.

Baroyeca Gold Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baroyeca Gold Silver has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Baroyeca Gold is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and Baroyeca Gold

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

The idea behind Merck Company and Baroyeca Gold Silver 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.