Correlation Between Esperion Therapeutics and Merck
Can any of the company-specific risk be diversified away by investing in both Esperion Therapeutics 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 Esperion Therapeutics and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Esperion Therapeutics and Merck Company, you can compare the effects of market volatilities on Esperion Therapeutics 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 Esperion Therapeutics with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Esperion Therapeutics and Merck.
Diversification Opportunities for Esperion Therapeutics and Merck
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Esperion and Merck is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Esperion Therapeutics and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Esperion Therapeutics 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 Esperion Therapeutics 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 Esperion Therapeutics i.e., Esperion Therapeutics and Merck go up and down completely randomly.
Pair Corralation between Esperion Therapeutics and Merck
Given the investment horizon of 90 days Esperion Therapeutics is expected to generate 6.48 times more return on investment than Merck. However, Esperion Therapeutics is 6.48 times more volatile than Merck Company. It trades about 0.12 of its potential returns per unit of risk. Merck Company is currently generating about 0.16 per unit of risk. If you would invest 215.00 in Esperion Therapeutics on September 18, 2024 and sell it today you would earn a total of 31.00 from holding Esperion Therapeutics or generate 14.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Esperion Therapeutics vs. Merck Company
Performance |
| Timeline |
| Esperion Therapeutics |
| Merck Company |
Esperion Therapeutics and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Esperion Therapeutics and Merck
The main advantage of trading using opposite Esperion Therapeutics and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Esperion Therapeutics 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 Esperion Therapeutics 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.| Merck vs. Emergent Biosolutions | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries | Merck vs. Haleon plc |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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