Correlation Between Merck and Celularity

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

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

Diversification Opportunities for Merck and Celularity

-0.6

Correlation Coefficient

Merck  Celularity

Excellent diversification

The 3 months correlation between Merck and Celularity is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Celularity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Celularity 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 Celularity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Celularity has no effect on the direction of Merck i.e., Merck and Celularity go up and down completely randomly.

Pair Corralation between Merck and Celularity

Considering the 90-day investment horizon Merck Company is expected to under-perform the Celularity. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 23.08 times less risky than Celularity. The stock trades about -0.07 of its potential returns per unit of risk. The Celularity is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1.71  in Celularity on December 30, 2024 and sell it today you would earn a total of  2.98  from holding Celularity or generate 174.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	93.55%
Values	Daily Returns

Merck Company  vs.  Celularity

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 abnormal 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.

Celularity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Celularity are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Celularity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Celularity

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

The idea behind Merck Company and Celularity 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.