Correlation Between Equillium and Merck

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Can any of the company-specific risk be diversified away by investing in both Equillium 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 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

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Equillium and Merck is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Equillium and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Equillium 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 Equillium 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 Equillium i.e., Equillium and Merck go up and down completely randomly.

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.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Equillium  vs.  Merck Company

 Performance 
       Timeline  
Equillium 

Risk-Adjusted Performance

22 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Equillium are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Equillium reported solid returns over the last few months and may actually be approaching a breakup point.
Merck Company 

Risk-Adjusted Performance

27 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.

Equillium and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Equillium and Merck

The 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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