Correlation Between Merck and Evogene
Can any of the company-specific risk be diversified away by investing in both Merck and Evogene 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 Evogene into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Evogene, you can compare the effects of market volatilities on Merck and Evogene 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 Evogene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Evogene.
Diversification Opportunities for Merck and Evogene
Very poor diversification
The 3 months correlation between Merck and Evogene is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Evogene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evogene 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 Evogene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evogene has no effect on the direction of Merck i.e., Merck and Evogene go up and down completely randomly.
Pair Corralation between Merck and Evogene
Considering the 90-day investment horizon Merck Company is expected to generate 0.29 times more return on investment than Evogene. However, Merck Company is 3.47 times less risky than Evogene. It trades about -0.11 of its potential returns per unit of risk. Evogene is currently generating about -0.21 per unit of risk. If you would invest 12,681 in Merck Company on September 1, 2024 and sell it today you would lose (2,517) from holding Merck Company or give up 19.85% 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. Evogene
Performance |
| Timeline |
| Merck Company |
| Evogene |
Merck and Evogene Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Evogene
The main advantage of trading using opposite Merck and Evogene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Evogene 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 Evogene will offset losses from the drop in Evogene's long position.The idea behind Merck Company and Evogene 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.| Evogene vs. Arcus Biosciences | Evogene vs. Fate Therapeutics | Evogene vs. Pluri Inc | Evogene vs. Lexaria Bioscience 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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