Correlation Between Merck and Checkpoint Therapeutics

Can any of the company-specific risk be diversified away by investing in both Merck and Checkpoint 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 Checkpoint 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 Checkpoint Therapeutics, you can compare the effects of market volatilities on Merck and Checkpoint 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 Checkpoint Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Checkpoint Therapeutics.

Diversification Opportunities for Merck and Checkpoint Therapeutics

-0.78

Correlation Coefficient

Merck  Checkpoint Therapeutics

Pay attention - limited upside

The 3 months correlation between Merck and Checkpoint is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Checkpoint Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Checkpoint 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 Checkpoint Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Checkpoint Therapeutics has no effect on the direction of Merck i.e., Merck and Checkpoint Therapeutics go up and down completely randomly.

Pair Corralation between Merck and Checkpoint Therapeutics

Considering the 90-day investment horizon Merck Company is expected to under-perform the Checkpoint Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.79 times less risky than Checkpoint Therapeutics. The stock trades about -0.15 of its potential returns per unit of risk. The Checkpoint Therapeutics is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  224.00  in Checkpoint Therapeutics on September 30, 2024 and sell it today you would earn a total of  126.00  from holding Checkpoint Therapeutics or generate 56.25% return on investment over 90 days.

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

Merck Company  vs.  Checkpoint Therapeutics

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 unsteady 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.

Checkpoint Therapeutics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Checkpoint Therapeutics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Checkpoint Therapeutics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Checkpoint Therapeutics

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

The idea behind Merck Company and Checkpoint 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.

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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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.