Correlation Between Merck and Prothena Plc

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

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

Diversification Opportunities for Merck and Prothena Plc

0.74

Correlation Coefficient

Merck  Prothena Plc

Poor diversification

The 3 months correlation between Merck and Prothena is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Prothena plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prothena plc 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 Prothena Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prothena plc has no effect on the direction of Merck i.e., Merck and Prothena Plc go up and down completely randomly.

Pair Corralation between Merck and Prothena Plc

Considering the 90-day investment horizon Merck is expected to generate 6.13 times less return on investment than Prothena Plc. But when comparing it to its historical volatility, Merck Company is 6.82 times less risky than Prothena Plc. It trades about 0.1 of its potential returns per unit of risk. Prothena plc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,440  in Prothena plc on September 21, 2024 and sell it today you would earn a total of  161.00  from holding Prothena plc or generate 11.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Merck Company  vs.  Prothena plc

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 uncertain 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.

Prothena plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prothena plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Merck and Prothena Plc

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

The idea behind Merck Company and Prothena plc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.