Correlation Between Merck and ValOre Metals

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

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

Diversification Opportunities for Merck and ValOre Metals

-0.58

Correlation Coefficient

Merck  ValOre Metals

Excellent diversification

The 3 months correlation between Merck and ValOre is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ValOre Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ValOre Metals Corp 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 ValOre Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ValOre Metals Corp has no effect on the direction of Merck i.e., Merck and ValOre Metals go up and down completely randomly.

Pair Corralation between Merck and ValOre Metals

Considering the 90-day investment horizon Merck is expected to generate 67.1 times less return on investment than ValOre Metals. But when comparing it to its historical volatility, Merck Company is 6.7 times less risky than ValOre Metals. It trades about 0.0 of its potential returns per unit of risk. ValOre Metals Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  21.00  in ValOre Metals Corp on September 3, 2024 and sell it today you would lose (15.50) from holding ValOre Metals Corp or give up 73.81% of portfolio value over 90 days.

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

Merck Company  vs.  ValOre Metals Corp

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 latest unsteady 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.

ValOre Metals Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ValOre Metals Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, ValOre Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and ValOre Metals

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

The idea behind Merck Company and ValOre Metals Corp 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 Transaction History module to view history of all your transactions and understand their impact on performance.