Correlation Between Merck and Palatin Technologies

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

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

Diversification Opportunities for Merck and Palatin Technologies

0.14

Correlation Coefficient

Merck  Palatin Technologies

Average diversification

The 3 months correlation between Merck and Palatin is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Palatin Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palatin Technologies 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 Palatin Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palatin Technologies has no effect on the direction of Merck i.e., Merck and Palatin Technologies go up and down completely randomly.

Pair Corralation between Merck and Palatin Technologies

Considering the 90-day investment horizon Merck Company is expected to under-perform the Palatin Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.32 times less risky than Palatin Technologies. The stock trades about -0.04 of its potential returns per unit of risk. The Palatin Technologies is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  86.00  in Palatin Technologies on December 19, 2024 and sell it today you would lose (6.00) from holding Palatin Technologies or give up 6.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Palatin Technologies

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 quite persistent basic indicators, Merck is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Palatin Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Palatin Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Palatin Technologies is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Palatin Technologies

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

The idea behind Merck Company and Palatin Technologies 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.