Correlation Between AbbVie and Merck
Can any of the company-specific risk be diversified away by investing in both AbbVie 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 AbbVie and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AbbVie Inc and Merck Company, you can compare the effects of market volatilities on AbbVie 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 AbbVie with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of AbbVie and Merck.
Diversification Opportunities for AbbVie and Merck
Poor diversification
The 3 months correlation between AbbVie and Merck is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding AbbVie Inc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and AbbVie 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 AbbVie Inc 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 AbbVie i.e., AbbVie and Merck go up and down completely randomly.
Pair Corralation between AbbVie and Merck
Given the investment horizon of 90 days AbbVie Inc is expected to under-perform the Merck. In addition to that, AbbVie is 1.63 times more volatile than Merck Company. It trades about -0.1 of its total potential returns per unit of risk. Merck Company is currently generating about -0.02 per unit of volatility. If you would invest 10,107 in Merck Company on November 1, 2024 and sell it today you would lose (212.00) from holding Merck Company or give up 2.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AbbVie Inc vs. Merck Company
Performance |
| Timeline |
| AbbVie Inc |
| Merck Company |
AbbVie and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AbbVie and Merck
The main advantage of trading using opposite AbbVie and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AbbVie 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.| AbbVie vs. Merck Company | AbbVie vs. Pfizer Inc | AbbVie vs. Eli Lilly and | AbbVie vs. Bristol Myers Squibb |
| Merck vs. Collegium Pharmaceutical | Merck vs. Phibro Animal Health | Merck vs. ANI Pharmaceuticals | Merck vs. Procaps Group 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 the Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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