Correlation Between Spero Therapeutics and Merck

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Can any of the company-specific risk be diversified away by investing in both Spero Therapeutics 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 Spero Therapeutics and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spero Therapeutics and Merck Company, you can compare the effects of market volatilities on Spero Therapeutics 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 Spero Therapeutics with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spero Therapeutics and Merck.

Diversification Opportunities for Spero Therapeutics and Merck

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Spero and Merck is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Spero Therapeutics and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Spero Therapeutics 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 Spero Therapeutics 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 Spero Therapeutics i.e., Spero Therapeutics and Merck go up and down completely randomly.

Pair Corralation between Spero Therapeutics and Merck

Given the investment horizon of 90 days Spero Therapeutics is expected to generate 1.62 times more return on investment than Merck. However, Spero Therapeutics is 1.62 times more volatile than Merck Company. It trades about 0.11 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest  133.00  in Spero Therapeutics on April 23, 2024 and sell it today you would earn a total of  7.00  from holding Spero Therapeutics or generate 5.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Spero Therapeutics  vs.  Merck Company

 Performance 
       Timeline  
Spero Therapeutics 

Risk-Adjusted Performance

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

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Spero Therapeutics and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Spero Therapeutics and Merck

The main advantage of trading using opposite Spero Therapeutics and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spero Therapeutics 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 Spero Therapeutics 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.
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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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