Correlation Between Merck and Evaxion Biotech

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

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

Diversification Opportunities for Merck and Evaxion Biotech

0.78

Correlation Coefficient

Merck  Evaxion Biotech

Poor diversification

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

Pair Corralation between Merck and Evaxion Biotech

Considering the 90-day investment horizon Merck Company is expected to generate 0.13 times more return on investment than Evaxion Biotech. However, Merck Company is 7.49 times less risky than Evaxion Biotech. It trades about 0.01 of its potential returns per unit of risk. Evaxion Biotech AS is currently generating about -0.03 per unit of risk. If you would invest  10,003  in Merck Company on September 14, 2024 and sell it today you would earn a total of  198.00  from holding Merck Company or generate 1.98% return on investment over 90 days.

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

Merck Company  vs.  Evaxion Biotech AS

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.

Evaxion Biotech AS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Evaxion Biotech AS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Merck and Evaxion Biotech

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

The idea behind Merck Company and Evaxion Biotech AS 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.