Correlation Between Merck and Central Puerto

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

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

Diversification Opportunities for Merck and Central Puerto

0.19

Correlation Coefficient

Merck  Central Puerto

Average diversification

The 3 months correlation between Merck and Central is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Central Puerto SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Puerto SA 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 Central Puerto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Puerto SA has no effect on the direction of Merck i.e., Merck and Central Puerto go up and down completely randomly.

Pair Corralation between Merck and Central Puerto

Considering the 90-day investment horizon Merck is expected to generate 1.76 times less return on investment than Central Puerto. But when comparing it to its historical volatility, Merck Company is 3.15 times less risky than Central Puerto. It trades about 0.1 of its potential returns per unit of risk. Central Puerto SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  949.00  in Central Puerto SA on January 25, 2024 and sell it today you would earn a total of  78.00  from holding Central Puerto SA or generate 8.22% 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.  Central Puerto SA

Merck Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Central Puerto SA

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Central Puerto SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Central Puerto may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Merck and Central Puerto

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

The idea behind Merck Company and Central Puerto SA 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.