Correlation Between Merck and Cardiff Oncology

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

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

Diversification Opportunities for Merck and Cardiff Oncology

-0.37

Correlation Coefficient

Merck  Cardiff Oncology

Very good diversification

The 3 months correlation between Merck and Cardiff is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Cardiff Oncology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardiff Oncology 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 Cardiff Oncology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardiff Oncology has no effect on the direction of Merck i.e., Merck and Cardiff Oncology go up and down completely randomly.

Pair Corralation between Merck and Cardiff Oncology

Considering the 90-day investment horizon Merck Company is expected to under-perform the Cardiff Oncology. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 5.3 times less risky than Cardiff Oncology. The stock trades about 0.0 of its potential returns per unit of risk. The Cardiff Oncology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  126.00  in Cardiff Oncology on September 13, 2024 and sell it today you would earn a total of  252.00  from holding Cardiff Oncology or generate 200.0% return on investment over 90 days.

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

Merck Company  vs.  Cardiff Oncology

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.

Cardiff Oncology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cardiff Oncology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, Cardiff Oncology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Cardiff Oncology

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

The idea behind Merck Company and Cardiff Oncology 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 CEOs Directory module to screen CEOs from public companies around the world.