Correlation Between Merck and Brickell Biotech

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Can any of the company-specific risk be diversified away by investing in both Merck and Brickell 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 Brickell 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 Brickell Biotech, you can compare the effects of market volatilities on Merck and Brickell 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 Brickell Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Brickell Biotech.

Diversification Opportunities for Merck and Brickell Biotech

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Merck and Brickell is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Brickell Biotech Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brickell Biotech 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 Brickell Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brickell Biotech has no effect on the direction of Merck i.e., Merck and Brickell Biotech go up and down completely randomly.

Pair Corralation between Merck and Brickell Biotech

Considering the 90-day investment horizon Merck Company is expected to generate 0.19 times more return on investment than Brickell Biotech. However, Merck Company is 5.25 times less risky than Brickell Biotech. It trades about 0.04 of its potential returns per unit of risk. Brickell Biotech is currently generating about -0.05 per unit of risk. If you would invest  7,095  in Merck Company on June 28, 2022 and sell it today you would earn a total of  1,583  from holding Merck Company or generate 22.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.4%
ValuesDaily Returns

Merck Company  vs.  Brickell Biotech Inc

 Performance (%) 
       Timeline  
Merck Company 
Merck Performance
0 of 100
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Brickell Biotech 
Brickell Performance
0 of 100
Over the last 90 days Brickell Biotech 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 fundamental drivers remain nearly stable which may send shares a bit higher in October 2022. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Brickell Price Channel

Merck and Brickell Biotech Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and Brickell Biotech

The main advantage of trading using opposite Merck and Brickell Biotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Brickell 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 Brickell Biotech will offset losses from the drop in Brickell Biotech's long position.
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The idea behind Merck Company and Brickell Biotech 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.
Brickell Biotech vs. Industrias Bachoco SA
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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