Correlation Between Deciphera Pharmaceuticals and Merck

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

By analyzing existing cross correlation between Deciphera Pharmaceuticals LLC and Merck Company, you can compare the effects of market volatilities on Deciphera Pharmaceuticals and Merck 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 Deciphera Pharmaceuticals with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deciphera Pharmaceuticals and Merck.

Diversification Opportunities for Deciphera Pharmaceuticals and Merck

0.19

Correlation Coefficient

Deciphera Pharmaceuticals  Merck

Average diversification

The 3 months correlation between Deciphera and Merck is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Deciphera Pharmaceuticals LLC and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Deciphera Pharmaceuticals 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 Deciphera Pharmaceuticals LLC are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Deciphera Pharmaceuticals i.e., Deciphera Pharmaceuticals and Merck go up and down completely randomly.

Pair Corralation between Deciphera Pharmaceuticals and Merck

Given the investment horizon of 90 days Deciphera Pharmaceuticals LLC is expected to generate 17.51 times more return on investment than Merck. However, Deciphera Pharmaceuticals is 17.51 times more volatile than Merck Company. It trades about 0.2 of its potential returns per unit of risk. Merck Company is currently generating about -0.06 per unit of risk. If you would invest  1,519  in Deciphera Pharmaceuticals LLC on February 2, 2024 and sell it today you would earn a total of  1,017  from holding Deciphera Pharmaceuticals LLC or generate 66.95% return on investment over 90 days.

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

Deciphera Pharmaceuticals LLC  vs.  Merck Company

Deciphera Pharmaceuticals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deciphera Pharmaceuticals LLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Deciphera Pharmaceuticals demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Deciphera Pharmaceuticals and Merck

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

The idea behind Deciphera Pharmaceuticals LLC and Merck Company 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.