Correlation Between Merck and Elanco Animal
Can any of the company-specific risk be diversified away by investing in both Merck and Elanco Animal 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 Elanco Animal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Elanco Animal Health, you can compare the effects of market volatilities on Merck and Elanco Animal 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 Elanco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Elanco Animal.
Diversification Opportunities for Merck and Elanco Animal
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between Merck and Elanco is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Elanco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elanco Animal Health 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 Company are associated (or correlated) with Elanco Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elanco Animal Health has no effect on the direction of Merck i.e., Merck and Elanco Animal go up and down completely randomly.
Pair Corralation between Merck and Elanco Animal
Assuming the 90 days horizon Merck is expected to generate 1.44 times less return on investment than Elanco Animal. But when comparing it to its historical volatility, Merck Company is 2.03 times less risky than Elanco Animal. It trades about 0.01 of its potential returns per unit of risk. Elanco Animal Health is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1,240 in Elanco Animal Health on September 14, 2024 and sell it today you would lose (50.00) from holding Elanco Animal Health or give up 4.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Elanco Animal Health
Performance |
| Timeline |
| Merck Company |
| Elanco Animal Health |
Merck and Elanco Animal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Elanco Animal
The main advantage of trading using opposite Merck and Elanco Animal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Elanco Animal 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 Elanco Animal will offset losses from the drop in Elanco Animal's long position.| Merck vs. WillScot Mobile Mini | Merck vs. ALGOMA STEEL GROUP | Merck vs. GFL ENVIRONM | Merck vs. Highlight Communications AG |
| Elanco Animal vs. Merck Company | Elanco Animal vs. Superior Plus Corp | Elanco Animal vs. NMI Holdings | Elanco Animal vs. SIVERS SEMICONDUCTORS AB |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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