Correlation Between Merck and Nextier Oilfield

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

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

Diversification Opportunities for Merck and Nextier Oilfield

-0.81

Correlation Coefficient

Merck  Nextier Oilfield

Pay attention - limited upside

The 3 months correlation between Merck and Nextier is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Nextier Oilfield Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextier Oilfield Sol 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 Nextier Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextier Oilfield Sol has no effect on the direction of Merck i.e., Merck and Nextier Oilfield go up and down completely randomly.

Pair Corralation between Merck and Nextier Oilfield

If you would invest  10,107  in Merck Company on September 3, 2024 and sell it today you would lose (46.00) from holding Merck Company or give up 0.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	0.4%
Values	Daily Returns

Merck Company  vs.  Nextier Oilfield Solutions

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 unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Nextier Oilfield Sol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextier Oilfield Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Nextier Oilfield is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Nextier Oilfield

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

The idea behind Merck Company and Nextier Oilfield Solutions 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.