Correlation Between Merck and Frequency Therapeutics
Can any of the company-specific risk be diversified away by investing in both Merck and Frequency Therapeutics 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 Frequency Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Frequency Therapeutics, you can compare the effects of market volatilities on Merck and Frequency Therapeutics 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 Frequency Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Frequency Therapeutics.
Diversification Opportunities for Merck and Frequency Therapeutics
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Frequency is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Frequency Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frequency Therapeutics 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 Frequency Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frequency Therapeutics has no effect on the direction of Merck i.e., Merck and Frequency Therapeutics go up and down completely randomly.
Pair Corralation between Merck and Frequency Therapeutics
Considering the 90-day investment horizon Merck Company is expected to generate 0.23 times more return on investment than Frequency Therapeutics. However, Merck Company is 4.42 times less risky than Frequency Therapeutics. It trades about -0.01 of its potential returns per unit of risk. Frequency Therapeutics is currently generating about -0.07 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 Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Frequency Therapeutics
Performance |
| Timeline |
| Merck Company |
| Frequency Therapeutics |
Merck and Frequency Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Frequency Therapeutics
The main advantage of trading using opposite Merck and Frequency Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Frequency Therapeutics 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 Frequency Therapeutics will offset losses from the drop in Frequency Therapeutics' long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities |