Correlation Between Merck and Prelude Therapeutics
Can any of the company-specific risk be diversified away by investing in both Merck and Prelude Therapeutics 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 Prelude Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Prelude Therapeutics, you can compare the effects of market volatilities on Merck and Prelude Therapeutics 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 Prelude Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Prelude Therapeutics.
Diversification Opportunities for Merck and Prelude Therapeutics
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Merck and Prelude is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Prelude Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prelude Therapeutics 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 Prelude Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prelude Therapeutics has no effect on the direction of Merck i.e., Merck and Prelude Therapeutics go up and down completely randomly.
Pair Corralation between Merck and Prelude Therapeutics
Considering the 90-day investment horizon Merck Company is expected to generate 0.21 times more return on investment than Prelude Therapeutics. However, Merck Company is 4.86 times less risky than Prelude Therapeutics. It trades about -0.06 of its potential returns per unit of risk. Prelude Therapeutics is currently generating about -0.02 per unit of risk. If you would invest 9,981 in Merck Company on December 1, 2024 and sell it today you would lose (756.00) from holding Merck Company or give up 7.57% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Merck Company vs. Prelude Therapeutics
Performance |
Timeline |
Merck Company |
Prelude Therapeutics |
Merck and Prelude Therapeutics Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Merck and Prelude Therapeutics
The main advantage of trading using opposite Merck and Prelude Therapeutics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Prelude Therapeutics 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 Prelude Therapeutics will offset losses from the drop in Prelude Therapeutics' long position.The idea behind Merck Company and Prelude Therapeutics 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.Prelude Therapeutics vs. Foghorn Therapeutics | Prelude Therapeutics vs. Shattuck Labs | Prelude Therapeutics vs. Monte Rosa Therapeutics | Prelude Therapeutics vs. Kymera Therapeutics |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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