Correlation Between ASPEN PHARUNADR and Merck

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

By analyzing existing cross correlation between ASPEN PHARUNADR 1 and Merck Company, you can compare the effects of market volatilities on ASPEN PHARUNADR 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 ASPEN PHARUNADR with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of ASPEN PHARUNADR and Merck.

Diversification Opportunities for ASPEN PHARUNADR and Merck

0.83

Correlation Coefficient

ASPEN PHARUNADR  Merck

Very poor diversification

The 3 months correlation between ASPEN and Merck is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding ASPEN PHARUNADR 1 and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and ASPEN PHARUNADR 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 ASPEN PHARUNADR 1 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 ASPEN PHARUNADR i.e., ASPEN PHARUNADR and Merck go up and down completely randomly.

Pair Corralation between ASPEN PHARUNADR and Merck

Assuming the 90 days trading horizon ASPEN PHARUNADR 1 is expected to generate 1.27 times more return on investment than Merck. However, ASPEN PHARUNADR is 1.27 times more volatile than Merck Company. It trades about -0.07 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest  930.00  in ASPEN PHARUNADR 1 on October 20, 2024 and sell it today you would lose (70.00) from holding ASPEN PHARUNADR 1 or give up 7.53% of portfolio value over 90 days.

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

ASPEN PHARUNADR 1  vs.  Merck Company

ASPEN PHARUNADR 1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASPEN PHARUNADR 1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ASPEN PHARUNADR and Merck

The main advantage of trading using opposite ASPEN PHARUNADR and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ASPEN PHARUNADR 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 ASPEN PHARUNADR 1 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.