Correlation Between Merck and Avalon Acquisition

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

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

Diversification Opportunities for Merck and Avalon Acquisition

-0.45

Correlation Coefficient

Merck  Avalon Acquisition

Very good diversification

The 3 months correlation between Merck and Avalon is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Avalon Acquisition Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avalon Acquisition 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 Avalon Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avalon Acquisition has no effect on the direction of Merck i.e., Merck and Avalon Acquisition go up and down completely randomly.

Pair Corralation between Merck and Avalon Acquisition

If you would invest  11.00  in Avalon Acquisition Warrant on September 16, 2024 and sell it today you would earn a total of  0.00  from holding Avalon Acquisition Warrant or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.54%
Values	Daily Returns

Merck Company  vs.  Avalon Acquisition Warrant

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 uncertain 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.

Avalon Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merck and Avalon Acquisition

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

The idea behind Merck Company and Avalon Acquisition Warrant 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.