Correlation Between ESSA Pharma and Merck
Can any of the company-specific risk be diversified away by investing in both ESSA Pharma 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 ESSA Pharma and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ESSA Pharma and Merck Company, you can compare the effects of market volatilities on ESSA Pharma 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 ESSA Pharma with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESSA Pharma and Merck.
Diversification Opportunities for ESSA Pharma and Merck
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ESSA and Merck is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and ESSA Pharma 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 ESSA Pharma 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 ESSA Pharma i.e., ESSA Pharma and Merck go up and down completely randomly.
Pair Corralation between ESSA Pharma and Merck
Given the investment horizon of 90 days ESSA Pharma is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, ESSA Pharma is 1.19 times less risky than Merck. The stock trades about -0.56 of its potential returns per unit of risk. The Merck Company is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 9,839 in Merck Company on September 23, 2024 and sell it today you would lose (34.00) from holding Merck Company or give up 0.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ESSA Pharma vs. Merck Company
Performance |
| Timeline |
| ESSA Pharma |
| Merck Company |
ESSA Pharma and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ESSA Pharma and Merck
The main advantage of trading using opposite ESSA Pharma and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESSA Pharma 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.| ESSA Pharma vs. Fate Therapeutics | ESSA Pharma vs. Sana Biotechnology | ESSA Pharma vs. Caribou Biosciences | ESSA Pharma vs. Arcus Biosciences |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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