Correlation Between Merck and Procaps Group
Can any of the company-specific risk be diversified away by investing in both Merck and Procaps Group 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 Procaps Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Procaps Group SA, you can compare the effects of market volatilities on Merck and Procaps Group 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 Procaps Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Procaps Group.
Diversification Opportunities for Merck and Procaps Group
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Procaps is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Procaps Group SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procaps Group SA 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 Procaps Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procaps Group SA has no effect on the direction of Merck i.e., Merck and Procaps Group go up and down completely randomly.
Pair Corralation between Merck and Procaps Group
Considering the 90-day investment horizon Merck Company is expected to under-perform the Procaps Group. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 20.59 times less risky than Procaps Group. The stock trades about -0.05 of its potential returns per unit of risk. The Procaps Group SA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 180.00 in Procaps Group SA on August 31, 2024 and sell it today you would earn a total of 29.00 from holding Procaps Group SA or generate 16.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Procaps Group SA
Performance |
| Timeline |
| Merck Company |
| Procaps Group SA |
Merck and Procaps Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Procaps Group
The main advantage of trading using opposite Merck and Procaps Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Procaps Group 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 Procaps Group will offset losses from the drop in Procaps Group's long position.The idea behind Merck Company and Procaps Group SA 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.| Procaps Group vs. Bausch Health Companies | Procaps Group vs. Haleon plc | Procaps Group vs. Intracellular Th |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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