Correlation Between Merck and Neurobo Pharmaceuticals

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

Diversification Opportunities for Merck and Neurobo Pharmaceuticals

0.18

Correlation Coefficient

Merck  Neurobo Pharmaceuticals

Average diversification

The 3 months correlation between Merck and Neurobo is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Neurobo Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neurobo 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 Neurobo Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neurobo Pharmaceuticals has no effect on the direction of Merck i.e., Merck and Neurobo Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merck and Neurobo Pharmaceuticals

Considering the 90-day investment horizon Merck Company is expected to under-perform the Neurobo Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.87 times less risky than Neurobo Pharmaceuticals. The stock trades about -0.12 of its potential returns per unit of risk. The Neurobo Pharmaceuticals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  186.00  in Neurobo Pharmaceuticals on November 28, 2024 and sell it today you would earn a total of  3.00  from holding Neurobo Pharmaceuticals or generate 1.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	19.05%
Values	Daily Returns

Merck Company  vs.  Neurobo Pharmaceuticals

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.

Neurobo Pharmaceuticals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neurobo Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Merck and Neurobo Pharmaceuticals

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

The idea behind Merck Company and Neurobo 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.