Correlation Between SentinelOne and Merck

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

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

Diversification Opportunities for SentinelOne and Merck

-0.26

Correlation Coefficient

SentinelOne  Merck

Very good diversification

The 3 months correlation between SentinelOne and Merck is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding SentinelOne and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and SentinelOne 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 SentinelOne 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 SentinelOne i.e., SentinelOne and Merck go up and down completely randomly.

Pair Corralation between SentinelOne and Merck

Taking into account the 90-day investment horizon SentinelOne is expected to under-perform the Merck. In addition to that, SentinelOne is 2.59 times more volatile than Merck Company. It trades about -0.13 of its total potential returns per unit of risk. Merck Company is currently generating about 0.01 per unit of volatility. If you would invest  13,099  in Merck Company on January 30, 2024 and sell it today you would earn a total of  21.00  from holding Merck Company or generate 0.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

SentinelOne  vs.  Merck Company

SentinelOne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SentinelOne has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Merck Company

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with SentinelOne and Merck

The main advantage of trading using opposite SentinelOne and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SentinelOne 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 SentinelOne 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.