Correlation Between Scilex Holding and Merck

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

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

Diversification Opportunities for Scilex Holding and Merck

0.5

Correlation Coefficient

Scilex Holding  Merck

Very weak diversification

The 3 months correlation between Scilex and Merck is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Scilex Holding and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Scilex Holding 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 Scilex Holding are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Scilex Holding i.e., Scilex Holding and Merck go up and down completely randomly.

Pair Corralation between Scilex Holding and Merck

Assuming the 90 days horizon Scilex Holding is expected to generate 10.5 times more return on investment than Merck. However, Scilex Holding is 10.5 times more volatile than Merck Company. It trades about 0.0 of its potential returns per unit of risk. Merck Company is currently generating about -0.03 per unit of risk. If you would invest  22.00  in Scilex Holding on December 19, 2024 and sell it today you would lose (13.00) from holding Scilex Holding or give up 59.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.92%
Values	Daily Returns

Scilex Holding  vs.  Merck Company

Scilex Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scilex Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Scilex Holding is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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.

Pair Trading with Scilex Holding and Merck

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

The idea behind Scilex Holding and Merck Company 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.