Correlation Between Merck and Ono Pharmaceutical

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

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

Diversification Opportunities for Merck and Ono Pharmaceutical

0.56

Correlation Coefficient

Merck  Ono Pharmaceutical

Very weak diversification

The 3 months correlation between Merck and Ono is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Ono Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ono Pharmaceutical 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 Ono Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ono Pharmaceutical has no effect on the direction of Merck i.e., Merck and Ono Pharmaceutical go up and down completely randomly.

Pair Corralation between Merck and Ono Pharmaceutical

Considering the 90-day investment horizon Merck Company is expected to under-perform the Ono Pharmaceutical. In addition to that, Merck is 1.36 times more volatile than Ono Pharmaceutical Co. It trades about -0.13 of its total potential returns per unit of risk. Ono Pharmaceutical Co is currently generating about 0.21 per unit of volatility. If you would invest  331.00  in Ono Pharmaceutical Co on December 4, 2024 and sell it today you would earn a total of  26.00  from holding Ono Pharmaceutical Co or generate 7.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Merck Company  vs.  Ono Pharmaceutical Co

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.

Ono Pharmaceutical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ono Pharmaceutical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Merck and Ono Pharmaceutical

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

The idea behind Merck Company and Ono Pharmaceutical Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.