Correlation Between Tempo Scan and Merck Tbk

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

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

Diversification Opportunities for Tempo Scan and Merck Tbk

0.68

Correlation Coefficient

Tempo Scan  Merck Tbk

Poor diversification

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

Pair Corralation between Tempo Scan and Merck Tbk

Assuming the 90 days trading horizon Tempo Scan Pacific is expected to under-perform the Merck Tbk. But the stock apears to be less risky and, when comparing its historical volatility, Tempo Scan Pacific is 2.3 times less risky than Merck Tbk. The stock trades about -0.32 of its potential returns per unit of risk. The Merck Tbk is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  346,000  in Merck Tbk on September 15, 2024 and sell it today you would earn a total of  12,000  from holding Merck Tbk or generate 3.47% return on investment over 90 days.

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

Tempo Scan Pacific  vs.  Merck Tbk

Tempo Scan Pacific

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tempo Scan Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Tempo Scan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Merck Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Merck Tbk is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Tempo Scan and Merck Tbk

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

The idea behind Tempo Scan Pacific and Merck Tbk 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.