Correlation Between Amada and Merck

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

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

Diversification Opportunities for Amada and Merck

0.18

Correlation Coefficient

Amada  Merck

Average diversification

The 3 months correlation between Amada and Merck is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Amada Co and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Amada 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 Amada Co 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 Amada i.e., Amada and Merck go up and down completely randomly.

Pair Corralation between Amada and Merck

Assuming the 90 days horizon Amada Co is expected to generate 1.29 times more return on investment than Merck. However, Amada is 1.29 times more volatile than Merck Company. It trades about 0.09 of its potential returns per unit of risk. Merck Company is currently generating about 0.08 per unit of risk. If you would invest  3,438  in Amada Co on February 6, 2024 and sell it today you would earn a total of  1,016  from holding Amada Co or generate 29.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.56%
Values	Daily Returns

Amada Co  vs.  Merck Company

Amada

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amada Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Amada may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Merck Company

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Amada and Merck

The main advantage of trading using opposite Amada and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amada 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 Amada Co 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.

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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.