Correlation Between Merck and Biogen
Can any of the company-specific risk be diversified away by investing in both Merck and Biogen 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 Biogen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Co and Biogen Inc, you can compare the effects of market volatilities on Merck and Biogen 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 Biogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Biogen.
Diversification Opportunities for Merck and Biogen
Almost no diversification
The 3 months correlation between Merck and Biogen is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of Merck i.e., Merck and Biogen go up and down completely randomly.
Pair Corralation between Merck and Biogen
Assuming the 90 days horizon Merck Co is expected to generate 0.88 times more return on investment than Biogen. However, Merck Co is 1.14 times less risky than Biogen. It trades about 0.03 of its potential returns per unit of risk. Biogen Inc is currently generating about -0.07 per unit of risk. If you would invest 8,931 in Merck Co on August 25, 2024 and sell it today you would earn a total of 779.00 from holding Merck Co or generate 8.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Co vs. Biogen Inc
Performance |
| Timeline |
| Merck |
| Biogen Inc |
Merck and Biogen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Biogen
The main advantage of trading using opposite Merck and Biogen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Biogen 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 Biogen will offset losses from the drop in Biogen's long position.The idea behind Merck Co and Biogen 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.| Biogen vs. EIDESVIK OFFSHORE NK | Biogen vs. Suntory Beverage Food | Biogen vs. GREENX METALS LTD | Biogen vs. Harmony Gold Mining |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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