Correlation Between The9 and MERCK

Can any of the company-specific risk be diversified away by investing in both The9 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 The9 and MERCK into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The9 Ltd ADR and MERCK INC 595, you can compare the effects of market volatilities on The9 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 The9 with a short position of MERCK. Check out your portfolio center. Please also check ongoing floating volatility patterns of The9 and MERCK.

Diversification Opportunities for The9 and MERCK

-0.26

Correlation Coefficient

The9  MERCK

Very good diversification

The 3 months correlation between The9 and MERCK is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding The9 Ltd ADR and MERCK INC 595 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MERCK INC 595 and The9 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 The9 Ltd ADR 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 INC 595 has no effect on the direction of The9 i.e., The9 and MERCK go up and down completely randomly.

Pair Corralation between The9 and MERCK

Given the investment horizon of 90 days The9 Ltd ADR is expected to generate 12.51 times more return on investment than MERCK. However, The9 is 12.51 times more volatile than MERCK INC 595. It trades about 0.29 of its potential returns per unit of risk. MERCK INC 595 is currently generating about -0.04 per unit of risk. If you would invest  700.00  in The9 Ltd ADR on September 12, 2024 and sell it today you would earn a total of  1,064  from holding The9 Ltd ADR or generate 152.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	89.06%
Values	Daily Returns

The9 Ltd ADR  vs.  MERCK INC 595

The9 Ltd ADR

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The9 Ltd ADR are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, The9 showed solid returns over the last few months and may actually be approaching a breakup point.

MERCK INC 595

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCK INC 595 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MERCK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with The9 and MERCK

The main advantage of trading using opposite The9 and MERCK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if The9 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 The9 Ltd ADR and MERCK INC 595 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.