Correlation Between Merck and Ehouse Global

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

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

Diversification Opportunities for Merck and Ehouse Global

-0.11

Correlation Coefficient

Merck  Ehouse Global

Good diversification

The 3 months correlation between Merck and Ehouse is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Ehouse Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ehouse Global 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 Ehouse Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ehouse Global has no effect on the direction of Merck i.e., Merck and Ehouse Global go up and down completely randomly.

Pair Corralation between Merck and Ehouse Global

Considering the 90-day investment horizon Merck is expected to generate 47.91 times less return on investment than Ehouse Global. But when comparing it to its historical volatility, Merck Company is 56.87 times less risky than Ehouse Global. It trades about 0.06 of its potential returns per unit of risk. Ehouse Global is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Ehouse Global on February 5, 2024 and sell it today you would lose (0.01) from holding Ehouse Global or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.26%
Values	Daily Returns

Merck Company  vs.  Ehouse Global

Merck Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 2 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Ehouse Global

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ehouse Global are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Ehouse Global unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Ehouse Global

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

The idea behind Merck Company and Ehouse Global 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.