Correlation Between Merck and Abeona Therapeutics

Can any of the company-specific risk be diversified away by investing in both Merck and Abeona Therapeutics 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 Merck and Abeona Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Company and Abeona Therapeutics, you can compare the effects of market volatilities on Merck and Abeona Therapeutics 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 Merck with a short position of Abeona Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Abeona Therapeutics.

Diversification Opportunities for Merck and Abeona Therapeutics

0.35

Correlation Coefficient

Merck  Abeona Therapeutics

Weak diversification

The 3 months correlation between Merck and Abeona is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Abeona Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abeona Therapeutics and Merck 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 Merck Company are associated (or correlated) with Abeona Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abeona Therapeutics has no effect on the direction of Merck i.e., Merck and Abeona Therapeutics go up and down completely randomly.

Pair Corralation between Merck and Abeona Therapeutics

Considering the 90-day investment horizon Merck Company is expected to generate 0.12 times more return on investment than Abeona Therapeutics. However, Merck Company is 8.25 times less risky than Abeona Therapeutics. It trades about 0.1 of its potential returns per unit of risk. Abeona Therapeutics is currently generating about 0.0 per unit of risk. If you would invest  11,937  in Merck Company on January 25, 2024 and sell it today you would earn a total of  751.00  from holding Merck Company or generate 6.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Abeona Therapeutics

Merck Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Abeona Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Abeona Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Abeona Therapeutics is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Abeona Therapeutics

The main advantage of trading using opposite Merck and Abeona Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Abeona Therapeutics 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 Abeona Therapeutics will offset losses from the drop in Abeona Therapeutics' long position.

The idea behind Merck Company and Abeona Therapeutics 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.