Correlation Between Merck and OptiNose

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

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

Diversification Opportunities for Merck and OptiNose

0.66

Correlation Coefficient

Merck  OptiNose

Poor diversification

The 3 months correlation between Merck and OptiNose is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and OptiNose in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OptiNose 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 OptiNose. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OptiNose has no effect on the direction of Merck i.e., Merck and OptiNose go up and down completely randomly.

Pair Corralation between Merck and OptiNose

Assuming the 90 days horizon Merck Company is expected to generate 0.04 times more return on investment than OptiNose. However, Merck Company is 23.81 times less risky than OptiNose. It trades about 0.0 of its potential returns per unit of risk. OptiNose is currently generating about -0.28 per unit of risk. If you would invest  14,020  in Merck Company on October 6, 2024 and sell it today you would earn a total of  0.00  from holding Merck Company or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.12%
Values	Daily Returns

Merck Company  vs.  OptiNose

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 latest weak 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.

OptiNose

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days OptiNose has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, OptiNose reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and OptiNose

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

The idea behind Merck Company and OptiNose 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 Global Correlations module to find global opportunities by holding instruments from different markets.