Correlation Between Merck and Lumos Pharma

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

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

Diversification Opportunities for Merck and Lumos Pharma

-0.79

Correlation Coefficient

Merck  Lumos Pharma

Pay attention - limited upside

The 3 months correlation between Merck and Lumos is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Lumos Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lumos Pharma 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 Lumos Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lumos Pharma has no effect on the direction of Merck i.e., Merck and Lumos Pharma go up and down completely randomly.

Pair Corralation between Merck and Lumos Pharma

Considering the 90-day investment horizon Merck Company is expected to under-perform the Lumos Pharma. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 2.84 times less risky than Lumos Pharma. The stock trades about -0.15 of its potential returns per unit of risk. The Lumos Pharma is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  393.00  in Lumos Pharma on August 31, 2024 and sell it today you would earn a total of  37.00  from holding Lumos Pharma or generate 9.41% return on investment over 90 days.

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

Merck Company  vs.  Lumos Pharma

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 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.

Lumos Pharma

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lumos Pharma are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Lumos Pharma may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Merck and Lumos Pharma

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

The idea behind Merck Company and Lumos Pharma 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.