Correlation Between Merck and Capricor Therapeutics

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

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

Diversification Opportunities for Merck and Capricor Therapeutics

-0.23

Correlation Coefficient

Merck  Capricor Therapeutics

Very good diversification

The 3 months correlation between Merck and Capricor is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Capricor Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capricor Therapeutics 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 Capricor Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capricor Therapeutics has no effect on the direction of Merck i.e., Merck and Capricor Therapeutics go up and down completely randomly.

Pair Corralation between Merck and Capricor Therapeutics

Considering the 90-day investment horizon Merck Company is expected to under-perform the Capricor Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.99 times less risky than Capricor Therapeutics. The stock trades about -0.07 of its potential returns per unit of risk. The Capricor Therapeutics is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,376  in Capricor Therapeutics on December 29, 2024 and sell it today you would lose (194.00) from holding Capricor Therapeutics or give up 14.1% of portfolio value over 90 days.

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

Merck Company  vs.  Capricor Therapeutics

Merck Company

Risk-Adjusted Performance

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 uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Capricor Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capricor Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Merck and Capricor Therapeutics

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

The idea behind Merck Company and Capricor 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.