diversifiable risk of combining Equillium and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equillium and Merck Company, you can compare the effects of market volatilities on Equillium 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 Equillium with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equillium and Merck.
Diversification Opportunities for Equillium and Merck
Pair Corralation between Equillium and Merck
Allowing for the 90-day total investment horizon Equillium is expected to generate 5.81 times more return on investment than Merck. However, Equillium is 5.81 times more volatile than Merck Company. It trades about 0.09 of its potential returns per unit of risk. Merck Company is currently generating about 0.06 per unit of risk. If you would invest 92.00 in Equillium on December 1, 2023 and sell it today you would earn a total of 168.00 from holding Equillium or generate 182.61% return on investment over 90 days.
Equillium vs. Merck Company
Pair Trading with Equillium and MerckThe main advantage of trading using opposite Equillium and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equillium 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 Equillium 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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