Correlation Between Western Midstream and Merck

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

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

Diversification Opportunities for Western Midstream and Merck

0.0

Correlation Coefficient

Western Midstream  Merck

Pay attention - limited upside

The 3 months correlation between Western and Merck is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Western Midstream 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 Western Midstream Partners 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 Western Midstream i.e., Western Midstream and Merck go up and down completely randomly.

Pair Corralation between Western Midstream and Merck

Considering the 90-day investment horizon Western Midstream Partners is expected to generate 1.18 times more return on investment than Merck. However, Western Midstream is 1.18 times more volatile than Merck Company. It trades about 0.03 of its potential returns per unit of risk. Merck Company is currently generating about -0.16 per unit of risk. If you would invest  3,796  in Western Midstream Partners on September 12, 2024 and sell it today you would earn a total of  78.00  from holding Western Midstream Partners or generate 2.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Western Midstream Partners  vs.  Merck Company

Western Midstream

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Western Midstream is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Western Midstream and Merck

The main advantage of trading using opposite Western Midstream and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Midstream 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 Western Midstream Partners 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.