Correlation Between Eli Lilly and Merck
Can any of the company-specific risk be diversified away by investing in both Eli Lilly 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 Eli Lilly and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eli Lilly and and Merck Company, you can compare the effects of market volatilities on Eli Lilly 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 Eli Lilly with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eli Lilly and Merck.
Diversification Opportunities for Eli Lilly and Merck
Very poor diversification
The 3 months correlation between Eli and Merck is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly and and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Eli Lilly 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 Eli Lilly and 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 Eli Lilly i.e., Eli Lilly and Merck go up and down completely randomly.
Pair Corralation between Eli Lilly and Merck
Considering the 90-day investment horizon Eli Lilly and is expected to under-perform the Merck. In addition to that, Eli Lilly is 1.91 times more volatile than Merck Company. It trades about -0.3 of its total potential returns per unit of risk. Merck Company is currently generating about -0.1 per unit of volatility. If you would invest 10,423 in Merck Company on August 28, 2024 and sell it today you would lose (307.00) from holding Merck Company or give up 2.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eli Lilly and vs. Merck Company
Performance |
| Timeline |
| Eli Lilly |
| Merck Company |
Eli Lilly and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eli Lilly and Merck
The main advantage of trading using opposite Eli Lilly and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly 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.| Eli Lilly vs. Johnson Johnson | Eli Lilly vs. Bristol Myers Squibb | Eli Lilly vs. AbbVie Inc | Eli Lilly vs. Pfizer Inc |
| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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