Correlation Between Merck and Aurinia Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both Merck and Aurinia Pharmaceuticals 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 Aurinia Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Aurinia Pharmaceuticals, you can compare the effects of market volatilities on Merck and Aurinia Pharmaceuticals 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 Aurinia Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Aurinia Pharmaceuticals.
Diversification Opportunities for Merck and Aurinia Pharmaceuticals
-0.74 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Aurinia is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Aurinia Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurinia Pharmaceuticals 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 Aurinia Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurinia Pharmaceuticals has no effect on the direction of Merck i.e., Merck and Aurinia Pharmaceuticals go up and down completely randomly.
Pair Corralation between Merck and Aurinia Pharmaceuticals
Considering the 90-day investment horizon Merck Company is expected to under-perform the Aurinia Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.86 times less risky than Aurinia Pharmaceuticals. The stock trades about -0.11 of its potential returns per unit of risk. The Aurinia Pharmaceuticals is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 536.00 in Aurinia Pharmaceuticals on September 1, 2024 and sell it today you would earn a total of 350.00 from holding Aurinia Pharmaceuticals or generate 65.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Merck Company vs. Aurinia Pharmaceuticals
Performance |
| Timeline |
| Merck Company |
| Aurinia Pharmaceuticals |
Merck and Aurinia Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Aurinia Pharmaceuticals
The main advantage of trading using opposite Merck and Aurinia Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Aurinia Pharmaceuticals 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 Aurinia Pharmaceuticals will offset losses from the drop in Aurinia Pharmaceuticals' long position.The idea behind Merck Company and Aurinia Pharmaceuticals 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.| Aurinia Pharmaceuticals vs. Viking Therapeutics | Aurinia Pharmaceuticals vs. Axsome Therapeutics | Aurinia Pharmaceuticals vs. Madrigal Pharmaceuticals | Aurinia Pharmaceuticals vs. Seres 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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