Correlation Between Merck and PureTech Health

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

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

Diversification Opportunities for Merck and PureTech Health

-0.41

Correlation Coefficient

Merck  PureTech Health

Very good diversification

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

Pair Corralation between Merck and PureTech Health

Considering the 90-day investment horizon Merck is expected to generate 19.05 times less return on investment than PureTech Health. But when comparing it to its historical volatility, Merck Company is 3.39 times less risky than PureTech Health. It trades about 0.01 of its potential returns per unit of risk. PureTech Health PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,708  in PureTech Health PLC on September 2, 2024 and sell it today you would earn a total of  513.00  from holding PureTech Health PLC or generate 30.04% return on investment over 90 days.

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

Merck Company  vs.  PureTech Health 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 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.

PureTech Health PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PureTech Health PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, PureTech Health is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Merck and PureTech Health

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

The idea behind Merck Company and PureTech Health 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.