Correlation Between Merck and NISOURCE

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

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

Diversification Opportunities for Merck and NISOURCE

0.33

Correlation Coefficient

Merck  NISOURCE

Weak diversification

The 3 months correlation between Merck and NISOURCE is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NISOURCE FIN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISOURCE FIN P 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 NISOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISOURCE FIN P has no effect on the direction of Merck i.e., Merck and NISOURCE go up and down completely randomly.

Pair Corralation between Merck and NISOURCE

Considering the 90-day investment horizon Merck Company is expected to under-perform the NISOURCE. In addition to that, Merck is 2.13 times more volatile than NISOURCE FIN P. It trades about -0.06 of its total potential returns per unit of risk. NISOURCE FIN P is currently generating about 0.05 per unit of volatility. If you would invest  8,889  in NISOURCE FIN P on December 25, 2024 and sell it today you would earn a total of  146.00  from holding NISOURCE FIN P or generate 1.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	77.97%
Values	Daily Returns

Merck Company  vs.  NISOURCE FIN P

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 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.

NISOURCE FIN P

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NISOURCE FIN P are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NISOURCE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and NISOURCE

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

The idea behind Merck Company and NISOURCE FIN P 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.