Correlation Between Merrimack Pharmaceuticals and Neoleukin Therapeutics

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

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

Diversification Opportunities for Merrimack Pharmaceuticals and Neoleukin Therapeutics

0.39

Correlation Coefficient

Merrimack Pharmaceuticals  Neoleukin Therapeutics

Weak diversification

The 3 months correlation between Merrimack and Neoleukin is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Merrimack Pharmaceuticals and Neoleukin Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neoleukin Therapeutics and Merrimack 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 Merrimack Pharmaceuticals are associated (or correlated) with Neoleukin Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neoleukin Therapeutics has no effect on the direction of Merrimack Pharmaceuticals i.e., Merrimack Pharmaceuticals and Neoleukin Therapeutics go up and down completely randomly.

Pair Corralation between Merrimack Pharmaceuticals and Neoleukin Therapeutics

Given the investment horizon of 90 days Merrimack Pharmaceuticals is expected to under-perform the Neoleukin Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merrimack Pharmaceuticals is 4.5 times less risky than Neoleukin Therapeutics. The stock trades about 0.0 of its potential returns per unit of risk. The Neoleukin Therapeutics is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  56.00  in Neoleukin Therapeutics on October 10, 2024 and sell it today you would earn a total of  13.00  from holding Neoleukin Therapeutics or generate 23.21% return on investment over 90 days.

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

Merrimack Pharmaceuticals  vs.  Neoleukin Therapeutics

Merrimack Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merrimack Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Merrimack Pharmaceuticals is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Neoleukin Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merrimack Pharmaceuticals and Neoleukin Therapeutics

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

The idea behind Merrimack Pharmaceuticals and Neoleukin Therapeutics 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.