Correlation Between Merck and Pliant Therapeutics
Can any of the company-specific risk be diversified away by investing in both Merck and Pliant 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 Pliant 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 Pliant Therapeutics, you can compare the effects of market volatilities on Merck and Pliant 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 Pliant Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Pliant Therapeutics.
Diversification Opportunities for Merck and Pliant Therapeutics
-0.43 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Pliant is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Pliant Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pliant 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 Pliant Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pliant Therapeutics has no effect on the direction of Merck i.e., Merck and Pliant Therapeutics go up and down completely randomly.
Pair Corralation between Merck and Pliant Therapeutics
Considering the 90-day investment horizon Merck Company is expected to generate 0.4 times more return on investment than Pliant Therapeutics. However, Merck Company is 2.48 times less risky than Pliant Therapeutics. It trades about -0.16 of its potential returns per unit of risk. Pliant Therapeutics is currently generating about -0.12 per unit of risk. If you would invest 10,638 in Merck Company on August 24, 2024 and sell it today you would lose (514.00) from holding Merck Company or give up 4.83% 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. Pliant Therapeutics
Performance |
| Timeline |
| Merck Company |
| Pliant Therapeutics |
Merck and Pliant Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Pliant Therapeutics
The main advantage of trading using opposite Merck and Pliant Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Pliant 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 Pliant Therapeutics will offset losses from the drop in Pliant Therapeutics' long position.The idea behind Merck Company and Pliant Therapeutics 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.| Pliant Therapeutics vs. Lyra Therapeutics | Pliant Therapeutics vs. Hookipa Pharma | Pliant Therapeutics vs. Cingulate Warrants | Pliant Therapeutics vs. SAB Biotherapeutics |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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