Correlation Between Merck and Berkeley LightsInc

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Can any of the company-specific risk be diversified away by investing in both Merck and Berkeley LightsInc 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 Merck and Berkeley LightsInc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Berkeley LightsInc, you can compare the effects of market volatilities on Merck and Berkeley LightsInc 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 Merck with a short position of Berkeley LightsInc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Berkeley LightsInc.

Diversification Opportunities for Merck and Berkeley LightsInc

-0.37
  Correlation Coefficient

Very good diversification

The 3 months correlation between Merck and Berkeley is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Berkeley LightsInc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkeley LightsInc and Merck 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 Merck Company are associated (or correlated) with Berkeley LightsInc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkeley LightsInc has no effect on the direction of Merck i.e., Merck and Berkeley LightsInc go up and down completely randomly.

Pair Corralation between Merck and Berkeley LightsInc

Considering the 90-day investment horizon Merck Company is expected to generate 0.24 times more return on investment than Berkeley LightsInc. However, Merck Company is 4.14 times less risky than Berkeley LightsInc. It trades about 0.07 of its potential returns per unit of risk. Berkeley LightsInc is currently generating about -0.1 per unit of risk. If you would invest  7,142  in Merck Company on September 9, 2022 and sell it today you would earn a total of  3,867  from holding Merck Company or generate 54.14% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Berkeley LightsInc

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
22 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Merck demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Price Channel

Berkeley LightsInc 
Berkeley Performance
0 of 100
Over the last 90 days Berkeley LightsInc 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 essential indicators remain nearly stable which may send shares a bit higher in January 2023. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Berkeley Price Channel

Merck and Berkeley LightsInc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Berkeley LightsInc

The main advantage of trading using opposite Merck and Berkeley LightsInc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Berkeley LightsInc 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 Berkeley LightsInc will offset losses from the drop in Berkeley LightsInc's long position.
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The idea behind Merck Company and Berkeley LightsInc 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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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 Transaction History module to view history of all your transactions and understand their impact on performance.

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