Correlation Between Merck and CanSino Biologics

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

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

Diversification Opportunities for Merck and CanSino Biologics

-0.36

Correlation Coefficient

Merck  CanSino Biologics

Very good diversification

The 3 months correlation between Merck and CanSino is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and CanSino Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CanSino Biologics 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 CanSino Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CanSino Biologics has no effect on the direction of Merck i.e., Merck and CanSino Biologics go up and down completely randomly.

Pair Corralation between Merck and CanSino Biologics

Considering the 90-day investment horizon Merck is expected to generate 5.82 times less return on investment than CanSino Biologics. But when comparing it to its historical volatility, Merck Company is 4.48 times less risky than CanSino Biologics. It trades about 0.07 of its potential returns per unit of risk. CanSino Biologics is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  230.00  in CanSino Biologics on March 7, 2024 and sell it today you would earn a total of  53.00  from holding CanSino Biologics or generate 23.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Merck Company  vs.  CanSino Biologics

Merck Company

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 5 (%) 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 current stock price mess, may contribute to short-term losses for the institutional investors.

CanSino Biologics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CanSino Biologics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental drivers, CanSino Biologics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and CanSino Biologics

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

The idea behind Merck Company and CanSino Biologics 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..