Correlation Between Merck and Belite Bio
Can any of the company-specific risk be diversified away by investing in both Merck and Belite Bio 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 Belite Bio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Belite Bio ADR, you can compare the effects of market volatilities on Merck and Belite Bio 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 Belite Bio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Belite Bio.
Diversification Opportunities for Merck and Belite Bio
-0.94 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Belite is -0.94. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Belite Bio ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Belite Bio ADR 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 Belite Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Belite Bio ADR has no effect on the direction of Merck i.e., Merck and Belite Bio go up and down completely randomly.
Pair Corralation between Merck and Belite Bio
Considering the 90-day investment horizon Merck Company is expected to under-perform the Belite Bio. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.16 times less risky than Belite Bio. The stock trades about -0.11 of its potential returns per unit of risk. The Belite Bio ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,885 in Belite Bio ADR on September 1, 2024 and sell it today you would earn a total of 1,441 from holding Belite Bio ADR or generate 29.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Belite Bio ADR
Performance |
| Timeline |
| Merck Company |
| Belite Bio ADR |
Merck and Belite Bio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Belite Bio
The main advantage of trading using opposite Merck and Belite Bio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Belite Bio 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 Belite Bio will offset losses from the drop in Belite Bio's long position.The idea behind Merck Company and Belite Bio ADR 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.| Belite Bio vs. Anebulo Pharmaceuticals | Belite Bio vs. Mineralys Therapeutics, Common | Belite Bio vs. AN2 Therapeutics | Belite Bio vs. Aerovate 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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