Correlation Between Merck and PETROLEOS

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

By analyzing existing cross correlation between Merck Company and PETROLEOS MEXICANOS 6875, you can compare the effects of market volatilities on Merck and PETROLEOS 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 PETROLEOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and PETROLEOS.

Diversification Opportunities for Merck and PETROLEOS

-0.11

Correlation Coefficient

Merck  PETROLEOS

Good diversification

The 3 months correlation between Merck and PETROLEOS is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and PETROLEOS MEXICANOS 6875 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PETROLEOS MEXICANOS 6875 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 PETROLEOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PETROLEOS MEXICANOS 6875 has no effect on the direction of Merck i.e., Merck and PETROLEOS go up and down completely randomly.

Pair Corralation between Merck and PETROLEOS

Considering the 90-day investment horizon Merck Company is expected to under-perform the PETROLEOS. In addition to that, Merck is 1.06 times more volatile than PETROLEOS MEXICANOS 6875. It trades about -0.16 of its total potential returns per unit of risk. PETROLEOS MEXICANOS 6875 is currently generating about -0.07 per unit of volatility. If you would invest  9,738  in PETROLEOS MEXICANOS 6875 on September 2, 2024 and sell it today you would lose (523.00) from holding PETROLEOS MEXICANOS 6875 or give up 5.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Merck Company  vs.  PETROLEOS MEXICANOS 6875

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.

PETROLEOS MEXICANOS 6875

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PETROLEOS MEXICANOS 6875 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PETROLEOS 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 PETROLEOS

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

The idea behind Merck Company and PETROLEOS MEXICANOS 6875 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.