Correlation Between Merck and Anika Therapeutics
Can any of the company-specific risk be diversified away by investing in both Merck and Anika Therapeutics 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 Anika Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Anika Therapeutics, you can compare the effects of market volatilities on Merck and Anika Therapeutics 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 Anika Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Anika Therapeutics.
Diversification Opportunities for Merck and Anika Therapeutics
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and Anika is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Anika Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anika Therapeutics 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 Anika Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anika Therapeutics has no effect on the direction of Merck i.e., Merck and Anika Therapeutics go up and down completely randomly.
Pair Corralation between Merck and Anika Therapeutics
Considering the 90-day investment horizon Merck Company is expected to generate 0.49 times more return on investment than Anika Therapeutics. However, Merck Company is 2.06 times less risky than Anika Therapeutics. It trades about 0.0 of its potential returns per unit of risk. Anika Therapeutics is currently generating about -0.03 per unit of risk. If you would invest 10,603 in Merck Company on August 31, 2024 and sell it today you would lose (439.00) from holding Merck Company or give up 4.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Anika Therapeutics
Performance |
| Timeline |
| Merck Company |
| Anika Therapeutics |
Merck and Anika Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Anika Therapeutics
The main advantage of trading using opposite Merck and Anika Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Anika Therapeutics 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 Anika Therapeutics will offset losses from the drop in Anika Therapeutics' long position.The idea behind Merck Company and Anika Therapeutics 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.| Anika Therapeutics vs. Axogen Inc | Anika Therapeutics vs. Orthofix Medical | Anika Therapeutics vs. SurModics | Anika Therapeutics vs. Paragon 28 |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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