Correlation Between NVIDIA and Merck

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

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

Diversification Opportunities for NVIDIA and Merck

-0.88

Correlation Coefficient

NVIDIA  Merck

Pay attention - limited upside

The 3 months correlation between NVIDIA and Merck is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and NVIDIA 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 NVIDIA 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 Company has no effect on the direction of NVIDIA i.e., NVIDIA and Merck go up and down completely randomly.

Pair Corralation between NVIDIA and Merck

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Merck. In addition to that, NVIDIA is 1.74 times more volatile than Merck Company. It trades about -0.11 of its total potential returns per unit of risk. Merck Company is currently generating about 0.05 per unit of volatility. If you would invest  9,858  in Merck Company on September 13, 2024 and sell it today you would earn a total of  117.00  from holding Merck Company or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

NVIDIA  vs.  Merck Company

NVIDIA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

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 abnormal 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.

Pair Trading with NVIDIA and Merck

The main advantage of trading using opposite NVIDIA and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA and Merck Company 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.