Correlation Between Merck and Element Nutritional

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

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

Diversification Opportunities for Merck and Element Nutritional

-0.68

Correlation Coefficient

Merck  Element Nutritional

Excellent diversification

The 3 months correlation between Merck and Element is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Element Nutritional Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Nutritional 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 Element Nutritional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Nutritional has no effect on the direction of Merck i.e., Merck and Element Nutritional go up and down completely randomly.

Pair Corralation between Merck and Element Nutritional

If you would invest  10,187  in Merck Company on September 5, 2024 and sell it today you would lose (2.00) from holding Merck Company or give up 0.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	4.55%
Values	Daily Returns

Merck Company  vs.  Element Nutritional Sciences

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.

Element Nutritional

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Element Nutritional Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Element Nutritional 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 Element Nutritional

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

The idea behind Merck Company and Element Nutritional Sciences 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.