Correlation Between Merck and NOVANT

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

By analyzing existing cross correlation between Merck Company and NOVANT 2637 01 NOV 36, you can compare the effects of market volatilities on Merck and NOVANT 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 NOVANT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and NOVANT.

Diversification Opportunities for Merck and NOVANT

0.36

Correlation Coefficient

Merck  NOVANT

Weak diversification

The 3 months correlation between Merck and NOVANT is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NOVANT 2637 01 NOV 36 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVANT 2637 01 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 NOVANT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVANT 2637 01 has no effect on the direction of Merck i.e., Merck and NOVANT go up and down completely randomly.

Pair Corralation between Merck and NOVANT

Considering the 90-day investment horizon Merck Company is expected to under-perform the NOVANT. In addition to that, Merck is 2.34 times more volatile than NOVANT 2637 01 NOV 36. It trades about -0.12 of its total potential returns per unit of risk. NOVANT 2637 01 NOV 36 is currently generating about 0.18 per unit of volatility. If you would invest  7,765  in NOVANT 2637 01 NOV 36 on December 3, 2024 and sell it today you would earn a total of  75.00  from holding NOVANT 2637 01 NOV 36 or generate 0.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	23.81%
Values	Daily Returns

Merck Company  vs.  NOVANT 2637 01 NOV 36

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.

NOVANT 2637 01

Risk-Adjusted Performance

Very Weak

Over the last 90 days NOVANT 2637 01 NOV 36 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NOVANT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and NOVANT

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

The idea behind Merck Company and NOVANT 2637 01 NOV 36 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.