Correlation Between Merck and Xenetic Biosciences

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

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

Diversification Opportunities for Merck and Xenetic Biosciences

-0.84

Correlation Coefficient

Merck  Xenetic Biosciences

Pay attention - limited upside

The 3 months correlation between Merck and Xenetic is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Xenetic Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xenetic Biosciences 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 Xenetic Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xenetic Biosciences has no effect on the direction of Merck i.e., Merck and Xenetic Biosciences go up and down completely randomly.

Pair Corralation between Merck and Xenetic Biosciences

Considering the 90-day investment horizon Merck is expected to generate 344.39 times less return on investment than Xenetic Biosciences. But when comparing it to its historical volatility, Merck Company is 17.95 times less risky than Xenetic Biosciences. It trades about 0.01 of its potential returns per unit of risk. Xenetic Biosciences is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  112.00  in Xenetic Biosciences on September 4, 2024 and sell it today you would earn a total of  1,642  from holding Xenetic Biosciences or generate 1466.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	61.54%
Values	Daily Returns

Merck Company  vs.  Xenetic Biosciences

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.

Xenetic Biosciences

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xenetic Biosciences has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Xenetic Biosciences is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merck and Xenetic Biosciences

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

The idea behind Merck Company and Xenetic Biosciences 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .