Correlation Between Supernus Pharmaceuticals and Merck KGaA

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

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

Diversification Opportunities for Supernus Pharmaceuticals and Merck KGaA

0.65

Correlation Coefficient

Supernus Pharmaceuticals  Merck KGaA

Poor diversification

The 3 months correlation between Supernus and Merck is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Supernus Pharmaceuticals and Merck KGaA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA ADR and Supernus Pharmaceuticals 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 Supernus Pharmaceuticals are associated (or correlated) with Merck KGaA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck KGaA ADR has no effect on the direction of Supernus Pharmaceuticals i.e., Supernus Pharmaceuticals and Merck KGaA go up and down completely randomly.

Pair Corralation between Supernus Pharmaceuticals and Merck KGaA

Given the investment horizon of 90 days Supernus Pharmaceuticals is expected to under-perform the Merck KGaA. In addition to that, Supernus Pharmaceuticals is 1.34 times more volatile than Merck KGaA ADR. It trades about -0.14 of its total potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.04 per unit of volatility. If you would invest  3,331  in Merck KGaA ADR on February 4, 2024 and sell it today you would lose (57.50) from holding Merck KGaA ADR or give up 1.73% of portfolio value over 90 days.

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

Supernus Pharmaceuticals  vs.  Merck KGaA ADR

Supernus Pharmaceuticals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Supernus Pharmaceuticals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Supernus Pharmaceuticals displayed solid returns over the last few months and may actually be approaching a breakup point.

Merck KGaA ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Merck KGaA ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Merck KGaA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Supernus Pharmaceuticals and Merck KGaA

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

The idea behind Supernus Pharmaceuticals and Merck KGaA ADR 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.