Correlation Between Merck and Equillium

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Can any of the company-specific risk be diversified away by investing in both Merck and Equillium 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 Equillium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Equillium, you can compare the effects of market volatilities on Merck and Equillium 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 Equillium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Equillium.

Diversification Opportunities for Merck and Equillium

MerckEquilliumDiversified AwayMerckEquilliumDiversified Away100%
-0.71
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Merck and Equillium is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Equillium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equillium 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 Equillium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equillium has no effect on the direction of Merck i.e., Merck and Equillium go up and down completely randomly.

Pair Corralation between Merck and Equillium

Considering the 90-day investment horizon Merck Company is expected to under-perform the Equillium. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.68 times less risky than Equillium. The stock trades about -0.11 of its potential returns per unit of risk. The Equillium is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  78.00  in Equillium on November 26, 2024 and sell it today you would earn a total of  2.00  from holding Equillium or generate 2.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Equillium

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -100102030
JavaScript chart by amCharts 3.21.15MRK EQ
       Timeline  
Merck Company 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb859095100105
Equillium 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Equillium are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Equillium reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb0.50.60.70.80.91

Merck and Equillium Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.86-2.14-1.42-0.710.00.671.342.012.68 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15MRK EQ
       Returns  

Pair Trading with Merck and Equillium

The main advantage of trading using opposite Merck and Equillium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Equillium 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 Equillium will offset losses from the drop in Equillium's long position.
The idea behind Merck Company and Equillium 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.
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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.

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