Correlation Between DiaMedica Therapeutics and Merck

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

Diversification Opportunities for DiaMedica Therapeutics and Merck

  Correlation Coefficient

Very weak diversification

The 3 months correlation between DiaMedica and Merck is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding DiaMedica Therapeutics and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and DiaMedica Therapeutics 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 DiaMedica Therapeutics 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 DiaMedica Therapeutics i.e., DiaMedica Therapeutics and Merck go up and down completely randomly.

Pair Corralation between DiaMedica Therapeutics and Merck

Given the investment horizon of 90 days DiaMedica Therapeutics is expected to generate 1.47 times less return on investment than Merck. In addition to that, DiaMedica Therapeutics is 3.78 times more volatile than Merck Company. It trades about 0.01 of its total potential returns per unit of risk. Merck Company is currently generating about 0.05 per unit of volatility. If you would invest  7,517  in Merck Company on July 2, 2023 and sell it today you would earn a total of  2,778  from holding Merck Company or generate 36.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

DiaMedica Therapeutics  vs.  Merck Company

DiaMedica Therapeutics 

DiaMedica Performance

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Over the last 90 days DiaMedica Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in October 2023. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Merck Company 

Merck Performance

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Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

DiaMedica Therapeutics and Merck Volatility Contrast

   Predicted Return Density   

Pair Trading with DiaMedica Therapeutics and Merck

The main advantage of trading using opposite DiaMedica Therapeutics and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DiaMedica Therapeutics 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 DiaMedica Therapeutics 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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