Correlation Between Merck and Applied Therapeutics
Can any of the company-specific risk be diversified away by investing in both Merck and Applied 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 Applied 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 Applied Therapeutics, you can compare the effects of market volatilities on Merck and Applied 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 Applied Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Applied Therapeutics.
Diversification Opportunities for Merck and Applied Therapeutics
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Merck and Applied is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Applied Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied 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 Applied Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Therapeutics has no effect on the direction of Merck i.e., Merck and Applied Therapeutics go up and down completely randomly.
Pair Corralation between Merck and Applied Therapeutics
Considering the 90-day investment horizon Merck Company is expected to under-perform the Applied Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.31 times less risky than Applied Therapeutics. The stock trades about -0.13 of its potential returns per unit of risk. The Applied Therapeutics is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 59.00 in Applied Therapeutics on November 27, 2024 and sell it today you would lose (5.00) from holding Applied Therapeutics or give up 8.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Applied Therapeutics
Performance |
| Timeline |
| Merck Company |
| Applied Therapeutics |
Merck and Applied Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Applied Therapeutics
The main advantage of trading using opposite Merck and Applied Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Applied 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 Applied Therapeutics will offset losses from the drop in Applied Therapeutics' long position.The idea behind Merck Company and Applied 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.| Applied Therapeutics vs. X4 Pharmaceuticals | Applied Therapeutics vs. Terns Pharmaceuticals | Applied Therapeutics vs. Day One Biopharmaceuticals | Applied Therapeutics vs. Hookipa Pharma |
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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