Correlation Between Merck and Gilead Sciences
Can any of the company-specific risk be diversified away by investing in both Merck and Gilead Sciences 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 Gilead Sciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Gilead Sciences, you can compare the effects of market volatilities on Merck and Gilead Sciences 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 Gilead Sciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Gilead Sciences.
Diversification Opportunities for Merck and Gilead Sciences
-0.79 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Merck and Gilead is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Merck i.e., Merck and Gilead Sciences go up and down completely randomly.
Pair Corralation between Merck and Gilead Sciences
Assuming the 90 days trading horizon Merck is expected to generate 9.32 times less return on investment than Gilead Sciences. But when comparing it to its historical volatility, Merck Company is 1.11 times less risky than Gilead Sciences. It trades about 0.01 of its potential returns per unit of risk. Gilead Sciences is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 135,392 in Gilead Sciences on November 29, 2024 and sell it today you would earn a total of 93,378 from holding Gilead Sciences or generate 68.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Merck Company vs. Gilead Sciences
Performance |
| Timeline |
| Merck Company |
| Gilead Sciences |
Merck and Gilead Sciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Gilead Sciences
The main advantage of trading using opposite Merck and Gilead Sciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Gilead Sciences 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 Gilead Sciences will offset losses from the drop in Gilead Sciences' long position.| Merck vs. Costco Wholesale | Merck vs. First Majestic Silver | Merck vs. Micron Technology | Merck vs. McEwen Mining |
| Gilead Sciences vs. New Oriental Education | Gilead Sciences vs. Ross Stores | Gilead Sciences vs. Costco Wholesale | Gilead Sciences vs. FibraHotel |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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