Correlation Between Merck and ETFS Metal

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

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

Diversification Opportunities for Merck and ETFS Metal

-0.58

Correlation Coefficient

Merck  ETFS Metal

Excellent diversification

The 3 months correlation between Merck and ETFS is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ETFS Metal Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Metal Securities 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 ETFS Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Metal Securities has no effect on the direction of Merck i.e., Merck and ETFS Metal go up and down completely randomly.

Pair Corralation between Merck and ETFS Metal

Considering the 90-day investment horizon Merck Company is expected to under-perform the ETFS Metal. In addition to that, Merck is 1.19 times more volatile than ETFS Metal Securities. It trades about -0.12 of its total potential returns per unit of risk. ETFS Metal Securities is currently generating about 0.09 per unit of volatility. If you would invest  21,700  in ETFS Metal Securities on September 18, 2024 and sell it today you would earn a total of  3,200  from holding ETFS Metal Securities or generate 14.75% 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.  ETFS Metal Securities

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 uncertain 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.

ETFS Metal Securities

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Merck and ETFS Metal

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

The idea behind Merck Company and ETFS Metal Securities 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.