Correlation Between Merck and Lipocine
Can any of the company-specific risk be diversified away by investing in both Merck and Lipocine 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 Lipocine into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Lipocine, you can compare the effects of market volatilities on Merck and Lipocine 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 Lipocine. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Lipocine.
Diversification Opportunities for Merck and Lipocine
Poor diversification
The 3 months correlation between Merck and Lipocine is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Lipocine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lipocine 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 Lipocine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lipocine has no effect on the direction of Merck i.e., Merck and Lipocine go up and down completely randomly.
Pair Corralation between Merck and Lipocine
Considering the 90-day investment horizon Merck Company is expected to generate 0.39 times more return on investment than Lipocine. However, Merck Company is 2.58 times less risky than Lipocine. It trades about -0.13 of its potential returns per unit of risk. Lipocine is currently generating about -0.08 per unit of risk. If you would invest 9,579 in Merck Company on November 18, 2024 and sell it today you would lose (1,278) from holding Merck Company or give up 13.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Lipocine
Performance |
| Timeline |
| Merck Company |
| Lipocine |
Merck and Lipocine Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Lipocine
The main advantage of trading using opposite Merck and Lipocine positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Lipocine 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 Lipocine will offset losses from the drop in Lipocine's long position.The idea behind Merck Company and Lipocine 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.| Lipocine vs. Reviva Pharmaceuticals Holdings | Lipocine vs. ZyVersa Therapeutics | Lipocine vs. Unicycive Therapeutics | Lipocine vs. Checkpoint Therapeutics |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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