Correlation Between Merck and Biofrontera
Can any of the company-specific risk be diversified away by investing in both Merck and Biofrontera 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 Biofrontera into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Biofrontera, you can compare the effects of market volatilities on Merck and Biofrontera 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 Biofrontera. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Biofrontera.
Diversification Opportunities for Merck and Biofrontera
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Biofrontera is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Biofrontera in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biofrontera 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 Biofrontera. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biofrontera has no effect on the direction of Merck i.e., Merck and Biofrontera go up and down completely randomly.
Pair Corralation between Merck and Biofrontera
Considering the 90-day investment horizon Merck Company is expected to under-perform the Biofrontera. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 8.35 times less risky than Biofrontera. The stock trades about -0.1 of its potential returns per unit of risk. The Biofrontera is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 89.00 in Biofrontera on August 28, 2024 and sell it today you would earn a total of 3.00 from holding Biofrontera or generate 3.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Biofrontera
Performance |
| Timeline |
| Merck Company |
| Biofrontera |
Merck and Biofrontera Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Biofrontera
The main advantage of trading using opposite Merck and Biofrontera positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Biofrontera 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 Biofrontera will offset losses from the drop in Biofrontera's long position.| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
| Biofrontera vs. Eliem Therapeutics | Biofrontera vs. HCW Biologics | Biofrontera vs. Scpharmaceuticals | Biofrontera vs. Milestone Pharmaceuticals |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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