Correlation Between Southern Copper and Merck

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

By analyzing existing cross correlation between Southern Copper and Merck Company, you can compare the effects of market volatilities on Southern Copper and Merck 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 Southern Copper with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Copper and Merck.

Diversification Opportunities for Southern Copper and Merck

0.32

Correlation Coefficient

Southern Copper  Merck

Weak diversification

The 3 months correlation between Southern and Merck is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Southern Copper and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Southern Copper 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 Southern Copper are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Southern Copper i.e., Southern Copper and Merck go up and down completely randomly.

Pair Corralation between Southern Copper and Merck

Assuming the 90 days trading horizon Southern Copper is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, Southern Copper is 2.06 times less risky than Merck. The stock trades about -0.16 of its potential returns per unit of risk. The Merck Company is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  201,055  in Merck Company on December 30, 2024 and sell it today you would lose (22,134) from holding Merck Company or give up 11.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Southern Copper  vs.  Merck Company

Southern Copper

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Copper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Southern Copper and Merck

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

The idea behind Southern Copper and Merck Company 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.