Correlation Between Merck and Nano Dimension

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Can any of the company-specific risk be diversified away by investing in both Merck and Nano Dimension 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 Nano Dimension into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Nano Dimension, you can compare the effects of market volatilities on Merck and Nano Dimension 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 Nano Dimension. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Nano Dimension.

Diversification Opportunities for Merck and Nano Dimension

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Merck and Nano is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Nano Dimension in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nano Dimension 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 Nano Dimension. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nano Dimension has no effect on the direction of Merck i.e., Merck and Nano Dimension go up and down completely randomly.

Pair Corralation between Merck and Nano Dimension

Considering the 90-day investment horizon Merck Company is expected to generate 0.38 times more return on investment than Nano Dimension. However, Merck Company is 2.64 times less risky than Nano Dimension. It trades about 0.08 of its potential returns per unit of risk. Nano Dimension is currently generating about 0.01 per unit of risk. If you would invest  8,285  in Merck Company on December 29, 2023 and sell it today you would earn a total of  4,890  from holding Merck Company or generate 59.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Nano Dimension

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

21 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.
Nano Dimension 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Nano Dimension are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Nano Dimension displayed solid returns over the last few months and may actually be approaching a breakup point.

Merck and Nano Dimension Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Nano Dimension

The main advantage of trading using opposite Merck and Nano Dimension positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Nano Dimension 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 Nano Dimension will offset losses from the drop in Nano Dimension's long position.
The idea behind Merck Company and Nano Dimension 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.
Check out your portfolio center.
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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.

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