Correlation Between Merck and Amgen
Can any of the company-specific risk be diversified away by investing in both Merck and Amgen 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 Amgen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Co and Amgen Inc, you can compare the effects of market volatilities on Merck and Amgen 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 Amgen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Amgen.
Diversification Opportunities for Merck and Amgen
Very weak diversification
The 3 months correlation between Merck and Amgen is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen Inc 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 Co are associated (or correlated) with Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of Merck i.e., Merck and Amgen go up and down completely randomly.
Pair Corralation between Merck and Amgen
Assuming the 90 days horizon Merck Co is expected to under-perform the Amgen. But the stock apears to be less risky and, when comparing its historical volatility, Merck Co is 1.33 times less risky than Amgen. The stock trades about -0.04 of its potential returns per unit of risk. The Amgen Inc is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 28,862 in Amgen Inc on August 29, 2024 and sell it today you would lose (3,287) from holding Amgen Inc or give up 11.39% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Co vs. Amgen Inc
Performance |
| Timeline |
| Merck |
| Amgen Inc |
Merck and Amgen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Amgen
The main advantage of trading using opposite Merck and Amgen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Amgen 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 Amgen will offset losses from the drop in Amgen's long position.The idea behind Merck Co and Amgen Inc 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.| Amgen vs. TRADEDOUBLER AB SK | Amgen vs. AUTO TRADER ADR | Amgen vs. Auto Trader Group | Amgen vs. SIDETRADE EO 1 |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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