Correlation Between Merck and Nexpoint Real

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

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

Diversification Opportunities for Merck and Nexpoint Real

0.85

Correlation Coefficient

Merck  Nexpoint Real

Very poor diversification

The 3 months correlation between Merck and Nexpoint is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Nexpoint Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexpoint Real Estate 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 Nexpoint Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexpoint Real Estate has no effect on the direction of Merck i.e., Merck and Nexpoint Real go up and down completely randomly.

Pair Corralation between Merck and Nexpoint Real

Considering the 90-day investment horizon Merck Company is expected to under-perform the Nexpoint Real. In addition to that, Merck is 2.59 times more volatile than Nexpoint Real Estate. It trades about -0.18 of its total potential returns per unit of risk. Nexpoint Real Estate is currently generating about -0.08 per unit of volatility. If you would invest  1,687  in Nexpoint Real Estate on September 14, 2024 and sell it today you would lose (41.00) from holding Nexpoint Real Estate or give up 2.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Merck Company  vs.  Nexpoint Real Estate

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 uncertain 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.

Nexpoint Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nexpoint Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Nexpoint Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Nexpoint Real

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

The idea behind Merck Company and Nexpoint Real Estate 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.