Correlation Between Merck and Nuvation Bio

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

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

Diversification Opportunities for Merck and Nuvation Bio

0.01

Correlation Coefficient

Merck  Nuvation Bio

Significant diversification

The 3 months correlation between Merck and Nuvation is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Nuvation Bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuvation Bio 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 Nuvation Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuvation Bio has no effect on the direction of Merck i.e., Merck and Nuvation Bio go up and down completely randomly.

Pair Corralation between Merck and Nuvation Bio

Considering the 90-day investment horizon Merck Company is expected to under-perform the Nuvation Bio. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.78 times less risky than Nuvation Bio. The stock trades about -0.15 of its potential returns per unit of risk. The Nuvation Bio is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  307.00  in Nuvation Bio on September 11, 2024 and sell it today you would lose (36.00) from holding Nuvation Bio or give up 11.73% of portfolio value over 90 days.

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

Merck Company  vs.  Nuvation Bio

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Nuvation Bio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nuvation Bio has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Nuvation Bio is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Nuvation Bio

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

The idea behind Merck Company and Nuvation Bio 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.