Correlation Between Merck and Green Technology

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

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

Diversification Opportunities for Merck and Green Technology

-0.47

Correlation Coefficient

Merck  Green Technology

Very good diversification

The 3 months correlation between Merck and Green is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Green Technology Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Green Technology Metals 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 Green Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Green Technology Metals has no effect on the direction of Merck i.e., Merck and Green Technology go up and down completely randomly.

Pair Corralation between Merck and Green Technology

Considering the 90-day investment horizon Merck Company is expected to under-perform the Green Technology. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 6.44 times less risky than Green Technology. The stock trades about -0.1 of its potential returns per unit of risk. The Green Technology Metals is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3.73  in Green Technology Metals on December 27, 2024 and sell it today you would lose (1.60) from holding Green Technology Metals or give up 42.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.83%
Values	Daily Returns

Merck Company  vs.  Green Technology Metals

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 uncertain 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.

Green Technology Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Green Technology Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Green Technology 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 Green Technology

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

The idea behind Merck Company and Green Technology Metals 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.