Correlation Between Merck and CanSino Biologics

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

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

Diversification Opportunities for Merck and CanSino Biologics

-0.63

Correlation Coefficient

Merck  CanSino Biologics

Excellent diversification

The 3 months correlation between Merck and CanSino is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and CanSino Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CanSino Biologics 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 CanSino Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CanSino Biologics has no effect on the direction of Merck i.e., Merck and CanSino Biologics go up and down completely randomly.

Pair Corralation between Merck and CanSino Biologics

Assuming the 90 days horizon Merck Company is expected to generate 0.39 times more return on investment than CanSino Biologics. However, Merck Company is 2.59 times less risky than CanSino Biologics. It trades about -0.02 of its potential returns per unit of risk. CanSino Biologics is currently generating about -0.01 per unit of risk. If you would invest  17,889  in Merck Company on September 24, 2024 and sell it today you would lose (4,209) from holding Merck Company or give up 23.53% of portfolio value over 90 days.

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

Merck Company  vs.  CanSino Biologics

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 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.

CanSino Biologics

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CanSino Biologics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CanSino Biologics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and CanSino Biologics

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

The idea behind Merck Company and CanSino Biologics 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.