Correlation Between Merck and VanEck Energy

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

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

Diversification Opportunities for Merck and VanEck Energy

-0.86

Correlation Coefficient

Merck  VanEck Energy

Pay attention - limited upside

The 3 months correlation between Merck and VanEck is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and VanEck Energy Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Energy Income 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 VanEck Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Energy Income has no effect on the direction of Merck i.e., Merck and VanEck Energy go up and down completely randomly.

Pair Corralation between Merck and VanEck Energy

Considering the 90-day investment horizon Merck is expected to generate 69.32 times less return on investment than VanEck Energy. But when comparing it to its historical volatility, Merck Company is 1.07 times less risky than VanEck Energy. It trades about 0.01 of its potential returns per unit of risk. VanEck Energy Income is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  8,817  in VanEck Energy Income on September 5, 2024 and sell it today you would earn a total of  1,015  from holding VanEck Energy Income or generate 11.51% return on investment over 90 days.

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

Merck Company  vs.  VanEck Energy Income

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.

VanEck Energy Income

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Energy Income are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, VanEck Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and VanEck Energy

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

The idea behind Merck Company and VanEck Energy Income 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.