Correlation Between Merck and Adverum Biotechnologies

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

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

Diversification Opportunities for Merck and Adverum Biotechnologies

-0.63

Correlation Coefficient

Merck  Adverum Biotechnologies

Excellent diversification

The 3 months correlation between Merck and Adverum is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Adverum Biotechnologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adverum Biotechnologies 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 Adverum Biotechnologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adverum Biotechnologies has no effect on the direction of Merck i.e., Merck and Adverum Biotechnologies go up and down completely randomly.

Pair Corralation between Merck and Adverum Biotechnologies

Considering the 90-day investment horizon Merck Company is expected to generate 0.17 times more return on investment than Adverum Biotechnologies. However, Merck Company is 5.89 times less risky than Adverum Biotechnologies. It trades about 0.07 of its potential returns per unit of risk. Adverum Biotechnologies is currently generating about 0.01 per unit of risk. If you would invest  10,798  in Merck Company on February 26, 2024 and sell it today you would earn a total of  2,151  from holding Merck Company or generate 19.92% return on investment over 90 days.

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

Merck Company  vs.  Adverum Biotechnologies

Merck Company

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 1 (%) 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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Adverum Biotechnologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Adverum Biotechnologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Merck and Adverum Biotechnologies

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

The idea behind Merck Company and Adverum Biotechnologies 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.