Correlation Between Merck and Eterna Therapeutics

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Can any of the company-specific risk be diversified away by investing in both Merck and Eterna 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 Eterna 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 Eterna Therapeutics, you can compare the effects of market volatilities on Merck and Eterna 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 Eterna Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Eterna Therapeutics.

Diversification Opportunities for Merck and Eterna Therapeutics

0.54
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Merck and Eterna is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Eterna Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eterna 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 Eterna Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eterna Therapeutics has no effect on the direction of Merck i.e., Merck and Eterna Therapeutics go up and down completely randomly.

Pair Corralation between Merck and Eterna Therapeutics

Considering the 90-day investment horizon Merck Company is expected to generate 0.2 times more return on investment than Eterna Therapeutics. However, Merck Company is 4.9 times less risky than Eterna Therapeutics. It trades about 0.0 of its potential returns per unit of risk. Eterna Therapeutics is currently generating about -0.05 per unit of risk. If you would invest  10,374  in Merck Company on October 5, 2024 and sell it today you would lose (457.00) from holding Merck Company or give up 4.41% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Merck Company  vs.  Eterna Therapeutics

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

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Weak
 
Strong
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.
Eterna Therapeutics 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Eterna Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Merck and Eterna Therapeutics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Eterna Therapeutics

The main advantage of trading using opposite Merck and Eterna Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Eterna 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 Eterna Therapeutics will offset losses from the drop in Eterna Therapeutics' long position.
The idea behind Merck Company and Eterna 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.

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