Correlation Between AllovirInc and Merck

Can any of the company-specific risk be diversified away by investing in both AllovirInc and Merck 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 AllovirInc and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AllovirInc and Merck Company, you can compare the effects of market volatilities on AllovirInc and Merck 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 AllovirInc with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of AllovirInc and Merck.

Diversification Opportunities for AllovirInc and Merck

0.38

Correlation Coefficient

AllovirInc  Merck

Weak diversification

The 3 months correlation between AllovirInc and Merck is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding AllovirInc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and AllovirInc 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 AllovirInc are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of AllovirInc i.e., AllovirInc and Merck go up and down completely randomly.

Pair Corralation between AllovirInc and Merck

Given the investment horizon of 90 days AllovirInc is expected to generate 2.05 times more return on investment than Merck. However, AllovirInc is 2.05 times more volatile than Merck Company. It trades about 0.06 of its potential returns per unit of risk. Merck Company is currently generating about 0.06 per unit of risk. If you would invest  76.00  in AllovirInc on January 25, 2024 and sell it today you would earn a total of  2.00  from holding AllovirInc or generate 2.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

AllovirInc  vs.  Merck Company

AllovirInc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AllovirInc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, AllovirInc reported solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with AllovirInc and Merck

The main advantage of trading using opposite AllovirInc and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AllovirInc position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.

The idea behind AllovirInc and Merck Company 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.

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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.