Correlation Between Eagle Pharmaceuticals and Merck

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

Diversification Opportunities for Eagle Pharmaceuticals and Merck

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Eagle and Merck is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Pharmaceuticals and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Eagle Pharmaceuticals 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 Eagle Pharmaceuticals 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 Eagle Pharmaceuticals i.e., Eagle Pharmaceuticals and Merck go up and down completely randomly.

Pair Corralation between Eagle Pharmaceuticals and Merck

Given the investment horizon of 90 days Eagle Pharmaceuticals is expected to under-perform the Merck. In addition to that, Eagle Pharmaceuticals is 3.92 times more volatile than Merck Company. It trades about -0.2 of its total potential returns per unit of risk. Merck Company is currently generating about 0.14 per unit of volatility. If you would invest  12,700  in Merck Company on February 24, 2024 and sell it today you would earn a total of  409.00  from holding Merck Company or generate 3.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Eagle Pharmaceuticals  vs.  Merck Company

 Performance 
       Timeline  
Eagle Pharmaceuticals 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Eagle Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.
Merck Company 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Eagle Pharmaceuticals and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Eagle Pharmaceuticals and Merck

The main advantage of trading using opposite Eagle Pharmaceuticals and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle Pharmaceuticals 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 Eagle Pharmaceuticals 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.

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