Correlation Between Madrigal Pharmaceuticals and Merck
Can any of the company-specific risk be diversified away by investing in both Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Madrigal Pharmaceuticals and Merck Company, you can compare the effects of market volatilities on Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madrigal Pharmaceuticals and Merck.
Diversification Opportunities for Madrigal Pharmaceuticals and Merck
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Madrigal and Merck is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Madrigal Pharmaceuticals and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals 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 Madrigal Pharmaceuticals i.e., Madrigal Pharmaceuticals and Merck go up and down completely randomly.
Pair Corralation between Madrigal Pharmaceuticals and Merck
Given the investment horizon of 90 days Madrigal Pharmaceuticals is expected to generate 5.34 times more return on investment than Merck. However, Madrigal Pharmaceuticals is 5.34 times more volatile than Merck Company. It trades about 0.34 of its potential returns per unit of risk. Merck Company is currently generating about -0.16 per unit of risk. If you would invest 20,248 in Madrigal Pharmaceuticals on August 24, 2024 and sell it today you would earn a total of 12,676 from holding Madrigal Pharmaceuticals or generate 62.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Madrigal Pharmaceuticals vs. Merck Company
Performance |
| Timeline |
| Madrigal Pharmaceuticals |
| Merck Company |
Madrigal Pharmaceuticals and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Madrigal Pharmaceuticals and Merck
The main advantage of trading using opposite Madrigal Pharmaceuticals and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madrigal Pharmaceuticals 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.| Madrigal Pharmaceuticals vs. Lyra Therapeutics | Madrigal Pharmaceuticals vs. Hookipa Pharma | Madrigal Pharmaceuticals vs. Cingulate Warrants | Madrigal Pharmaceuticals vs. SAB Biotherapeutics |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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