Correlation Between SBM Offshore and Merck

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

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

Diversification Opportunities for SBM Offshore and Merck

-0.72

Correlation Coefficient

SBM Offshore  Merck

Pay attention - limited upside

The 3 months correlation between SBM and Merck is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and SBM Offshore 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 SBM Offshore NV 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 SBM Offshore i.e., SBM Offshore and Merck go up and down completely randomly.

Pair Corralation between SBM Offshore and Merck

Assuming the 90 days trading horizon SBM Offshore NV is expected to generate 1.01 times more return on investment than Merck. However, SBM Offshore is 1.01 times more volatile than Merck Company. It trades about 0.05 of its potential returns per unit of risk. Merck Company is currently generating about -0.12 per unit of risk. If you would invest  1,632  in SBM Offshore NV on September 15, 2024 and sell it today you would earn a total of  52.00  from holding SBM Offshore NV or generate 3.19% return on investment over 90 days.

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

SBM Offshore NV  vs.  Merck Company

SBM Offshore NV

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, SBM Offshore is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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 inconsistent performance, the Stock's forward-looking signals remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with SBM Offshore and Merck

The main advantage of trading using opposite SBM Offshore and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBM Offshore 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 SBM Offshore NV 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.