Correlation Between Merck and Entrada Therapeutics
Can any of the company-specific risk be diversified away by investing in both Merck and Entrada 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 Entrada 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 Entrada Therapeutics, you can compare the effects of market volatilities on Merck and Entrada 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 Entrada Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Entrada Therapeutics.
Diversification Opportunities for Merck and Entrada Therapeutics
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Entrada is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Entrada Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entrada 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 Entrada Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entrada Therapeutics has no effect on the direction of Merck i.e., Merck and Entrada Therapeutics go up and down completely randomly.
Pair Corralation between Merck and Entrada Therapeutics
Considering the 90-day investment horizon Merck Company is expected to under-perform the Entrada Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.02 times less risky than Entrada Therapeutics. The stock trades about -0.02 of its potential returns per unit of risk. The Entrada Therapeutics is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,714 in Entrada Therapeutics on September 1, 2024 and sell it today you would earn a total of 275.00 from holding Entrada Therapeutics or generate 16.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Entrada Therapeutics
Performance |
| Timeline |
| Merck Company |
| Entrada Therapeutics |
Merck and Entrada Therapeutics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Entrada Therapeutics
The main advantage of trading using opposite Merck and Entrada Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Entrada 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 Entrada Therapeutics will offset losses from the drop in Entrada Therapeutics' long position.The idea behind Merck Company and Entrada 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.| Entrada Therapeutics vs. Molecular Partners AG | Entrada Therapeutics vs. Pmv Pharmaceuticals | Entrada Therapeutics vs. Monte Rosa Therapeutics | Entrada Therapeutics vs. Vigil Neuroscience |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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