Correlation Between Merck and Omeros

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

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

Diversification Opportunities for Merck and Omeros

0.41

Correlation Coefficient

Merck  Omeros

Very weak diversification

The 3 months correlation between Merck and Omeros is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Omeros in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omeros 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 Omeros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omeros has no effect on the direction of Merck i.e., Merck and Omeros go up and down completely randomly.

Pair Corralation between Merck and Omeros

Considering the 90-day investment horizon Merck Company is expected to under-perform the Omeros. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.42 times less risky than Omeros. The stock trades about -0.13 of its potential returns per unit of risk. The Omeros is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  843.00  in Omeros on December 5, 2024 and sell it today you would lose (45.00) from holding Omeros or give up 5.34% of portfolio value over 90 days.

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

Merck Company  vs.  Omeros

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.

Omeros

Risk-Adjusted Performance

Very Weak

Over the last 90 days Omeros has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Merck and Omeros

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

The idea behind Merck Company and Omeros 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.