Correlation Between Connect Biopharma and Merck
Can any of the company-specific risk be diversified away by investing in both Connect Biopharma 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 Connect Biopharma and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Connect Biopharma Holdings and Merck Company, you can compare the effects of market volatilities on Connect Biopharma 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 Connect Biopharma with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Connect Biopharma and Merck.
Diversification Opportunities for Connect Biopharma and Merck
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Connect and Merck is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Connect Biopharma Holdings and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Connect Biopharma 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 Connect Biopharma Holdings 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 Connect Biopharma i.e., Connect Biopharma and Merck go up and down completely randomly.
Pair Corralation between Connect Biopharma and Merck
Given the investment horizon of 90 days Connect Biopharma Holdings is expected to generate 3.84 times more return on investment than Merck. However, Connect Biopharma is 3.84 times more volatile than Merck Company. It trades about 0.1 of its potential returns per unit of risk. Merck Company is currently generating about 0.02 per unit of risk. If you would invest 105.00 in Connect Biopharma Holdings on September 12, 2024 and sell it today you would earn a total of 9.00 from holding Connect Biopharma Holdings or generate 8.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Connect Biopharma Holdings vs. Merck Company
Performance |
| Timeline |
| Connect Biopharma |
| Merck Company |
Connect Biopharma and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Connect Biopharma and Merck
The main advantage of trading using opposite Connect Biopharma and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Connect Biopharma 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.| Connect Biopharma vs. Equillium | Connect Biopharma vs. DiaMedica Therapeutics | Connect Biopharma vs. Valneva SE ADR | Connect Biopharma vs. Vivani Medical |
| Merck vs. Victory Integrity Smallmid Cap | Merck vs. Hilton Worldwide Holdings | Merck vs. NVIDIA | Merck vs. JPMorgan Chase Co |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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