Correlation Between Merck and Singapore Technologies

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

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

Diversification Opportunities for Merck and Singapore Technologies

0.62

Correlation Coefficient

Merck  Singapore Technologies

Poor diversification

The 3 months correlation between Merck and Singapore is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Singapore Technologies Enginee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Technologies 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 Singapore Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Technologies has no effect on the direction of Merck i.e., Merck and Singapore Technologies go up and down completely randomly.

Pair Corralation between Merck and Singapore Technologies

Considering the 90-day investment horizon Merck Company is expected to under-perform the Singapore Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.71 times less risky than Singapore Technologies. The stock trades about -0.08 of its potential returns per unit of risk. The Singapore Technologies Engineering is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,794  in Singapore Technologies Engineering on October 12, 2024 and sell it today you would earn a total of  655.00  from holding Singapore Technologies Engineering or generate 23.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.19%
Values	Daily Returns

Merck Company  vs.  Singapore Technologies Enginee

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 uncertain 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.

Singapore Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Singapore Technologies Engineering has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Merck and Singapore Technologies

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

The idea behind Merck Company and Singapore Technologies Engineering 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.