Correlation Between Merck and Oric Pharmaceuticals

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

Diversification Opportunities for Merck and Oric Pharmaceuticals

0.52

Correlation Coefficient

Merck  Oric Pharmaceuticals

Very weak diversification

The 3 months correlation between Merck and Oric is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Oric Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oric 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 Oric Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oric Pharmaceuticals has no effect on the direction of Merck i.e., Merck and Oric Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merck and Oric Pharmaceuticals

Considering the 90-day investment horizon Merck Company is expected to generate 0.38 times more return on investment than Oric Pharmaceuticals. However, Merck Company is 2.64 times less risky than Oric Pharmaceuticals. It trades about -0.03 of its potential returns per unit of risk. Oric Pharmaceuticals is currently generating about -0.24 per unit of risk. If you would invest  10,036  in Merck Company on September 25, 2024 and sell it today you would lose (91.00) from holding Merck Company or give up 0.91% 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.  Oric 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 unsteady 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.

Oric Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oric 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 forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Merck and Oric Pharmaceuticals

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

The idea behind Merck Company and Oric 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.