Correlation Between Merck and Novelis

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

By analyzing existing cross correlation between Merck Company and Novelis Corp 475, you can compare the effects of market volatilities on Merck and Novelis 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 Novelis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Novelis.

Diversification Opportunities for Merck and Novelis

0.26

Correlation Coefficient

Merck  Novelis

Modest diversification

The 3 months correlation between Merck and Novelis is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Novelis Corp 475 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novelis Corp 475 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 Novelis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novelis Corp 475 has no effect on the direction of Merck i.e., Merck and Novelis go up and down completely randomly.

Pair Corralation between Merck and Novelis

Considering the 90-day investment horizon Merck Company is expected to under-perform the Novelis. In addition to that, Merck is 2.61 times more volatile than Novelis Corp 475. It trades about -0.07 of its total potential returns per unit of risk. Novelis Corp 475 is currently generating about 0.31 per unit of volatility. If you would invest  9,145  in Novelis Corp 475 on October 20, 2024 and sell it today you would earn a total of  255.00  from holding Novelis Corp 475 or generate 2.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Merck Company  vs.  Novelis Corp 475

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.

Novelis Corp 475

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Novelis Corp 475 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Novelis is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Novelis

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

The idea behind Merck Company and Novelis Corp 475 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.