Correlation Between Merck and ESSA Pharma
Can any of the company-specific risk be diversified away by investing in both Merck and ESSA Pharma 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 ESSA Pharma into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and ESSA Pharma, you can compare the effects of market volatilities on Merck and ESSA Pharma 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 ESSA Pharma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and ESSA Pharma.
Diversification Opportunities for Merck and ESSA Pharma
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and ESSA is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and ESSA Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESSA Pharma 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 ESSA Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESSA Pharma has no effect on the direction of Merck i.e., Merck and ESSA Pharma go up and down completely randomly.
Pair Corralation between Merck and ESSA Pharma
Considering the 90-day investment horizon Merck Company is expected to generate 0.08 times more return on investment than ESSA Pharma. However, Merck Company is 12.08 times less risky than ESSA Pharma. It trades about -0.01 of its potential returns per unit of risk. ESSA Pharma is currently generating about -0.14 per unit of risk. If you would invest 10,373 in Merck Company on August 30, 2024 and sell it today you would lose (61.00) from holding Merck Company or give up 0.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. ESSA Pharma
Performance |
| Timeline |
| Merck Company |
| ESSA Pharma |
Merck and ESSA Pharma Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and ESSA Pharma
The main advantage of trading using opposite Merck and ESSA Pharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, ESSA Pharma 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 ESSA Pharma will offset losses from the drop in ESSA Pharma's long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
| ESSA Pharma vs. Ikena Oncology | ESSA Pharma vs. Eliem Therapeutics | ESSA Pharma vs. HCW Biologics | ESSA Pharma vs. RenovoRx |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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