Correlation Between Newpark Resources and MERCK

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

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

Diversification Opportunities for Newpark Resources and MERCK

0.31

Correlation Coefficient

Newpark Resources  MERCK

Weak diversification

The 3 months correlation between Newpark and MERCK is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Newpark Resources 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 Newpark Resources 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 Newpark Resources 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 Newpark Resources i.e., Newpark Resources and MERCK go up and down completely randomly.

Pair Corralation between Newpark Resources and MERCK

Allowing for the 90-day total investment horizon Newpark Resources is expected to generate 5.95 times more return on investment than MERCK. However, Newpark Resources is 5.95 times more volatile than MERCK INC 595. It trades about 0.09 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  752.00  in Newpark Resources on September 5, 2024 and sell it today you would earn a total of  87.00  from holding Newpark Resources or generate 11.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.48%
Values	Daily Returns

Newpark Resources  vs.  MERCK INC 595

Newpark Resources

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Newpark Resources reported 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Newpark Resources and MERCK

The main advantage of trading using opposite Newpark Resources and MERCK positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Newpark Resources 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 Newpark Resources 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.