Correlation Between Merck and Tinka Resources

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

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

Diversification Opportunities for Merck and Tinka Resources

0.68

Correlation Coefficient

Merck  Tinka Resources

Poor diversification

The 3 months correlation between Merck and Tinka is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Tinka Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tinka Resources 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 Tinka Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tinka Resources has no effect on the direction of Merck i.e., Merck and Tinka Resources go up and down completely randomly.

Pair Corralation between Merck and Tinka Resources

Considering the 90-day investment horizon Merck Company is expected to generate 0.18 times more return on investment than Tinka Resources. However, Merck Company is 5.52 times less risky than Tinka Resources. It trades about -0.15 of its potential returns per unit of risk. Tinka Resources Limited is currently generating about -0.03 per unit of risk. If you would invest  11,448  in Merck Company on September 12, 2024 and sell it today you would lose (1,348) from holding Merck Company or give up 11.77% of portfolio value over 90 days.

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

Merck Company  vs.  Tinka Resources Limited

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Tinka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tinka Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Merck and Tinka Resources

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

The idea behind Merck Company and Tinka Resources Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.