Correlation Between Assembly Biosciences and Merck

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Can any of the company-specific risk be diversified away by investing in both Assembly Biosciences 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 Assembly Biosciences and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Assembly Biosciences and Merck Company, you can compare the effects of market volatilities on Assembly Biosciences 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 Assembly Biosciences with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Assembly Biosciences and Merck.

Diversification Opportunities for Assembly Biosciences and Merck

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between Assembly and Merck is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Assembly Biosciences and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Assembly Biosciences 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 Assembly Biosciences 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 Assembly Biosciences i.e., Assembly Biosciences and Merck go up and down completely randomly.

Pair Corralation between Assembly Biosciences and Merck

Given the investment horizon of 90 days Assembly Biosciences is expected to generate 2.63 times more return on investment than Merck. However, Assembly Biosciences is 2.63 times more volatile than Merck Company. It trades about -0.02 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest  1,570  in Assembly Biosciences on April 23, 2024 and sell it today you would lose (57.00) from holding Assembly Biosciences or give up 3.63% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Assembly Biosciences  vs.  Merck Company

 Performance 
       Timeline  
Assembly Biosciences 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Assembly Biosciences are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, Assembly Biosciences sustained solid returns over the last few months and may actually be approaching a breakup point.
Merck Company 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Assembly Biosciences and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Assembly Biosciences and Merck

The main advantage of trading using opposite Assembly Biosciences and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Assembly Biosciences 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 Assembly Biosciences 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.
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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