Correlation Between Merck and Crinetics Pharmaceuticals

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

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

Diversification Opportunities for Merck and Crinetics Pharmaceuticals

-0.69

Correlation Coefficient

Merck  Crinetics Pharmaceuticals

Excellent diversification

The 3 months correlation between Merck and Crinetics is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Crinetics Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crinetics Pharmaceuticals 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 Crinetics Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crinetics Pharmaceuticals has no effect on the direction of Merck i.e., Merck and Crinetics Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merck and Crinetics Pharmaceuticals

Considering the 90-day investment horizon Merck is expected to generate 137.17 times less return on investment than Crinetics Pharmaceuticals. But when comparing it to its historical volatility, Merck Company is 3.39 times less risky than Crinetics Pharmaceuticals. It trades about 0.0 of its potential returns per unit of risk. Crinetics Pharmaceuticals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,624  in Crinetics Pharmaceuticals on September 5, 2024 and sell it today you would earn a total of  4,035  from holding Crinetics Pharmaceuticals or generate 248.46% 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.  Crinetics Pharmaceuticals

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 weak 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.

Crinetics Pharmaceuticals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Crinetics Pharmaceuticals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Crinetics Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Merck and Crinetics Pharmaceuticals

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

The idea behind Merck Company and Crinetics Pharmaceuticals 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.