Correlation Between Merck and Aptevo Therapeutics

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

Diversification Opportunities for Merck and Aptevo Therapeutics

-0.36

Correlation Coefficient

Merck  Aptevo Therapeutics

Very good diversification

The 3 months correlation between Merck and Aptevo is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Aptevo Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aptevo 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 Aptevo Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aptevo Therapeutics has no effect on the direction of Merck i.e., Merck and Aptevo Therapeutics go up and down completely randomly.

Pair Corralation between Merck and Aptevo Therapeutics

Considering the 90-day investment horizon Merck Company is expected to under-perform the Aptevo Therapeutics. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 10.27 times less risky than Aptevo Therapeutics. The stock trades about -0.17 of its potential returns per unit of risk. The Aptevo Therapeutics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,333  in Aptevo Therapeutics on September 12, 2024 and sell it today you would lose (332.00) from holding Aptevo Therapeutics or give up 24.91% of portfolio value over 90 days.

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

Merck Company  vs.  Aptevo 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 abnormal 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.

Aptevo Therapeutics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aptevo Therapeutics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Aptevo Therapeutics displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Aptevo Therapeutics

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

The idea behind Merck Company and Aptevo 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.