Correlation Between Merck and Electrameccanica

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

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

Diversification Opportunities for Merck and Electrameccanica

-0.4

Correlation Coefficient

Merck  Electrameccanica

Very good diversification

The 3 months correlation between Merck and Electrameccanica is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Electrameccanica Vehicles Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrameccanica Veh 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 Electrameccanica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrameccanica Veh has no effect on the direction of Merck i.e., Merck and Electrameccanica go up and down completely randomly.

Pair Corralation between Merck and Electrameccanica

Considering the 90-day investment horizon Merck is expected to generate 7.23 times less return on investment than Electrameccanica. But when comparing it to its historical volatility, Merck Company is 5.2 times less risky than Electrameccanica. It trades about 0.0 of its potential returns per unit of risk. Electrameccanica Vehicles Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  92.00  in Electrameccanica Vehicles Corp on October 9, 2024 and sell it today you would lose (20.00) from holding Electrameccanica Vehicles Corp or give up 21.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	26.21%
Values	Daily Returns

Merck Company  vs.  Electrameccanica Vehicles 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 abnormal 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.

Electrameccanica Veh

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrameccanica Vehicles Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, Electrameccanica is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Electrameccanica

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

The idea behind Merck Company and Electrameccanica Vehicles 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.