Correlation Between Merck and Carbon Streaming

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

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

Diversification Opportunities for Merck and Carbon Streaming

0.88

Correlation Coefficient

Merck  Carbon Streaming

Very poor diversification

The 3 months correlation between Merck and Carbon is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Carbon Streaming Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carbon Streaming 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 Carbon Streaming. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carbon Streaming Corp has no effect on the direction of Merck i.e., Merck and Carbon Streaming go up and down completely randomly.

Pair Corralation between Merck and Carbon Streaming

Considering the 90-day investment horizon Merck is expected to generate 4.99 times less return on investment than Carbon Streaming. But when comparing it to its historical volatility, Merck Company is 3.0 times less risky than Carbon Streaming. It trades about 0.05 of its potential returns per unit of risk. Carbon Streaming Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  31.00  in Carbon Streaming Corp on September 21, 2024 and sell it today you would earn a total of  2.00  from holding Carbon Streaming Corp or generate 6.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Carbon Streaming 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 uncertain 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.

Carbon Streaming Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carbon Streaming Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Carbon Streaming is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and Carbon Streaming

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

The idea behind Merck Company and Carbon Streaming 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.