Correlation Between Merck and Edesa Biotech
Can any of the company-specific risk be diversified away by investing in both Merck and Edesa Biotech 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 Edesa Biotech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Edesa Biotech, you can compare the effects of market volatilities on Merck and Edesa Biotech 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 Edesa Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Edesa Biotech.
Diversification Opportunities for Merck and Edesa Biotech
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Merck and Edesa is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Edesa Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edesa Biotech 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 Edesa Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edesa Biotech has no effect on the direction of Merck i.e., Merck and Edesa Biotech go up and down completely randomly.
Pair Corralation between Merck and Edesa Biotech
Considering the 90-day investment horizon Merck Company is expected to generate 0.23 times more return on investment than Edesa Biotech. However, Merck Company is 4.37 times less risky than Edesa Biotech. It trades about -0.22 of its potential returns per unit of risk. Edesa Biotech is currently generating about -0.43 per unit of risk. If you would invest 10,664 in Merck Company on August 23, 2024 and sell it today you would lose (678.00) from holding Merck Company or give up 6.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Edesa Biotech
Performance |
| Timeline |
| Merck Company |
| Edesa Biotech |
Merck and Edesa Biotech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Edesa Biotech
The main advantage of trading using opposite Merck and Edesa Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Edesa Biotech 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 Edesa Biotech will offset losses from the drop in Edesa Biotech's long position.| Merck vs. Johnson Johnson | Merck vs. Small Cap Core | Merck vs. Freedom Holding Corp | Merck vs. Gfl Environmental Holdings |
| Edesa Biotech vs. ZyVersa Therapeutics | Edesa Biotech vs. Sonnet Biotherapeutics Holdings | Edesa Biotech vs. Zura Bio Limited | Edesa Biotech vs. Phio Pharmaceuticals Corp |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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