Correlation Between Merck and Eyepoint Pharmaceuticals

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

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

Diversification Opportunities for Merck and Eyepoint Pharmaceuticals

-0.4

Correlation Coefficient

Merck  Eyepoint Pharmaceuticals

Very good diversification

The 3 months correlation between Merck and Eyepoint is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Eyepoint Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eyepoint Pharmaceuticals 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 Eyepoint Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eyepoint Pharmaceuticals has no effect on the direction of Merck i.e., Merck and Eyepoint Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merck and Eyepoint Pharmaceuticals

Considering the 90-day investment horizon Merck Company is expected to under-perform the Eyepoint Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 4.72 times less risky than Eyepoint Pharmaceuticals. The stock trades about -0.17 of its potential returns per unit of risk. The Eyepoint Pharmaceuticals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  888.00  in Eyepoint Pharmaceuticals on September 12, 2024 and sell it today you would lose (63.00) from holding Eyepoint Pharmaceuticals or give up 7.09% of portfolio value over 90 days.

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

Merck Company  vs.  Eyepoint Pharmaceuticals

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Eyepoint Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Eyepoint Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Eyepoint Pharmaceuticals is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merck and Eyepoint Pharmaceuticals

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

The idea behind Merck Company and Eyepoint Pharmaceuticals 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.