Correlation Between Merck and Sintana Energy

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

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

Diversification Opportunities for Merck and Sintana Energy

0.61

Correlation Coefficient

Merck  Sintana Energy

Poor diversification

The 3 months correlation between Merck and Sintana is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Sintana Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sintana Energy 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 Sintana Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sintana Energy has no effect on the direction of Merck i.e., Merck and Sintana Energy go up and down completely randomly.

Pair Corralation between Merck and Sintana Energy

Considering the 90-day investment horizon Merck Company is expected to under-perform the Sintana Energy. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.72 times less risky than Sintana Energy. The stock trades about -0.2 of its potential returns per unit of risk. The Sintana Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  77.00  in Sintana Energy on September 18, 2024 and sell it today you would earn a total of  6.00  from holding Sintana Energy or generate 7.79% return on investment over 90 days.

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

Merck Company  vs.  Sintana Energy

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.

Sintana Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sintana Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Sintana Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Sintana Energy

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

The idea behind Merck Company and Sintana Energy 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.