Correlation Between Merck and Sunshine Biopharma

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

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

Diversification Opportunities for Merck and Sunshine Biopharma

-0.44

Correlation Coefficient

Merck  Sunshine Biopharma

Very good diversification

The 3 months correlation between Merck and Sunshine is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Sunshine Biopharma Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunshine Biopharma 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 Sunshine Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunshine Biopharma has no effect on the direction of Merck i.e., Merck and Sunshine Biopharma go up and down completely randomly.

Pair Corralation between Merck and Sunshine Biopharma

Considering the 90-day investment horizon Merck Company is expected to under-perform the Sunshine Biopharma. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 14.85 times less risky than Sunshine Biopharma. The stock trades about -0.05 of its potential returns per unit of risk. The Sunshine Biopharma Warrant is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  12.00  in Sunshine Biopharma Warrant on August 31, 2024 and sell it today you would earn a total of  5.00  from holding Sunshine Biopharma Warrant or generate 41.67% return on investment over 90 days.

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

Merck Company  vs.  Sunshine Biopharma 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 latest abnormal 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.

Sunshine Biopharma

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunshine Biopharma Warrant are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady primary indicators, Sunshine Biopharma showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Sunshine Biopharma

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

The idea behind Merck Company and Sunshine Biopharma 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.