Correlation Between ELF Beauty and Merck

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

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

Diversification Opportunities for ELF Beauty and Merck

-0.03

Correlation Coefficient

ELF Beauty  Merck

Good diversification

The 3 months correlation between ELF and Merck is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding ELF Beauty and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and ELF Beauty 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 ELF Beauty 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 ELF Beauty i.e., ELF Beauty and Merck go up and down completely randomly.

Pair Corralation between ELF Beauty and Merck

Considering the 90-day investment horizon ELF Beauty is expected to generate 2.98 times more return on investment than Merck. However, ELF Beauty is 2.98 times more volatile than Merck Company. It trades about 0.0 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest  13,732  in ELF Beauty on September 4, 2024 and sell it today you would lose (661.00) from holding ELF Beauty or give up 4.81% of portfolio value over 90 days.

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

ELF Beauty  vs.  Merck Company

ELF Beauty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ELF Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, ELF Beauty is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with ELF Beauty and Merck

The main advantage of trading using opposite ELF Beauty and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ELF Beauty 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 ELF Beauty 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.