Correlation Between Merck and Aldeyra
Can any of the company-specific risk be diversified away by investing in both Merck and Aldeyra 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 Aldeyra into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Aldeyra, you can compare the effects of market volatilities on Merck and Aldeyra 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 Aldeyra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Aldeyra.
Diversification Opportunities for Merck and Aldeyra
Poor diversification
The 3 months correlation between Merck and Aldeyra is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Aldeyra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aldeyra 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 Aldeyra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aldeyra has no effect on the direction of Merck i.e., Merck and Aldeyra go up and down completely randomly.
Pair Corralation between Merck and Aldeyra
Considering the 90-day investment horizon Merck Company is expected to generate 0.28 times more return on investment than Aldeyra. However, Merck Company is 3.54 times less risky than Aldeyra. It trades about -0.03 of its potential returns per unit of risk. Aldeyra is currently generating about -0.12 per unit of risk. If you would invest 10,423 in Merck Company on August 29, 2024 and sell it today you would lose (112.50) from holding Merck Company or give up 1.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Aldeyra
Performance |
| Timeline |
| Merck Company |
| Aldeyra |
Merck and Aldeyra Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Aldeyra
The main advantage of trading using opposite Merck and Aldeyra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Aldeyra 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 Aldeyra will offset losses from the drop in Aldeyra's long position.| Merck vs. Pharvaris BV | Merck vs. Brinker International | Merck vs. Alcoa Corp | Merck vs. Direxion Daily FTSE |
| Aldeyra vs. Tarsus Pharmaceuticals | Aldeyra vs. Travere Therapeutics | Aldeyra vs. Eton Pharmaceuticals | Aldeyra vs. Viridian Therapeutics |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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