Correlation Between Merck and Evolv Technologies

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

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

Diversification Opportunities for Merck and Evolv Technologies

-0.18

Correlation Coefficient

Merck  Evolv Technologies

Good diversification

The 3 months correlation between Merck and Evolv is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Evolv Technologies Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolv Technologies 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 Evolv Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolv Technologies has no effect on the direction of Merck i.e., Merck and Evolv Technologies go up and down completely randomly.

Pair Corralation between Merck and Evolv Technologies

Considering the 90-day investment horizon Merck Company is expected to under-perform the Evolv Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 6.0 times less risky than Evolv Technologies. The stock trades about -0.09 of its potential returns per unit of risk. The Evolv Technologies Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Evolv Technologies Holdings on November 28, 2024 and sell it today you would lose (1.00) from holding Evolv Technologies Holdings or give up 3.57% of portfolio value over 90 days.

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

Merck Company  vs.  Evolv Technologies Holdings

Merck Company

Risk-Adjusted Performance

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.

Evolv Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Evolv Technologies Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Evolv Technologies showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Evolv Technologies

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

The idea behind Merck Company and Evolv Technologies Holdings 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.