Correlation Between Merck and NevGold Corp

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

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

Diversification Opportunities for Merck and NevGold Corp

-0.3

Correlation Coefficient

Merck  NevGold Corp

Very good diversification

The 3 months correlation between Merck and NevGold is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NevGold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NevGold 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 NevGold Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NevGold Corp has no effect on the direction of Merck i.e., Merck and NevGold Corp go up and down completely randomly.

Pair Corralation between Merck and NevGold Corp

Considering the 90-day investment horizon Merck Company is expected to under-perform the NevGold Corp. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 4.42 times less risky than NevGold Corp. The stock trades about -0.03 of its potential returns per unit of risk. The NevGold Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  16.00  in NevGold Corp on December 19, 2024 and sell it today you would earn a total of  3.00  from holding NevGold Corp or generate 18.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Merck Company  vs.  NevGold Corp

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 quite persistent basic indicators, Merck is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

NevGold Corp

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NevGold Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, NevGold Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and NevGold Corp

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

The idea behind Merck Company and NevGold 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.