Correlation Between Merck and Journey Energy

Can any of the company-specific risk be diversified away by investing in both Merck and Journey 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 Journey 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 Journey Energy, you can compare the effects of market volatilities on Merck and Journey 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 Journey Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Journey Energy.

Diversification Opportunities for Merck and Journey Energy

0.36

Correlation Coefficient

Merck  Journey Energy

Weak diversification

The 3 months correlation between Merck and Journey is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Journey Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Journey Energy 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 Journey Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Journey Energy has no effect on the direction of Merck i.e., Merck and Journey Energy go up and down completely randomly.

Pair Corralation between Merck and Journey Energy

Considering the 90-day investment horizon Merck Company is expected to generate 0.6 times more return on investment than Journey Energy. However, Merck Company is 1.67 times less risky than Journey Energy. It trades about -0.09 of its potential returns per unit of risk. Journey Energy is currently generating about -0.14 per unit of risk. If you would invest  10,083  in Merck Company on November 29, 2024 and sell it today you would lose (1,020) from holding Merck Company or give up 10.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Merck Company  vs.  Journey Energy

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.

Journey Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Journey Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Merck and Journey Energy

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

The idea behind Merck Company and Journey Energy 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.