Correlation Between Merck and Tamarack Valley

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

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

Diversification Opportunities for Merck and Tamarack Valley

0.21

Correlation Coefficient

Merck  Tamarack Valley

Modest diversification

The 3 months correlation between Merck and Tamarack is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Tamarack Valley Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamarack Valley Energy 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 Tamarack Valley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamarack Valley Energy has no effect on the direction of Merck i.e., Merck and Tamarack Valley go up and down completely randomly.

Pair Corralation between Merck and Tamarack Valley

Considering the 90-day investment horizon Merck Company is expected to under-perform the Tamarack Valley. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.12 times less risky than Tamarack Valley. The stock trades about -0.07 of its potential returns per unit of risk. The Tamarack Valley Energy is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  329.00  in Tamarack Valley Energy on December 29, 2024 and sell it today you would lose (22.00) from holding Tamarack Valley Energy or give up 6.69% of portfolio value over 90 days.

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

Merck Company  vs.  Tamarack Valley Energy

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 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.

Tamarack Valley Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tamarack Valley Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tamarack Valley 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 Tamarack Valley

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

The idea behind Merck Company and Tamarack Valley Energy 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.