Correlation Between Merck and VEON

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

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

Diversification Opportunities for Merck and VEON

0.05

Correlation Coefficient

Merck  VEON

Significant diversification

The 3 months correlation between Merck and VEON is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and VEON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VEON 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 VEON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VEON has no effect on the direction of Merck i.e., Merck and VEON go up and down completely randomly.

Pair Corralation between Merck and VEON

Considering the 90-day investment horizon Merck Company is expected to under-perform the VEON. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.49 times less risky than VEON. The stock trades about -0.14 of its potential returns per unit of risk. The VEON is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,355  in VEON on February 29, 2024 and sell it today you would earn a total of  195.00  from holding VEON or generate 8.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  VEON

Merck Company

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

VEON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VEON has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VEON is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and VEON

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

The idea behind Merck Company and VEON 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.