Correlation Between Merck and AbbVie
Can any of the company-specific risk be diversified away by investing in both Merck and AbbVie 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 AbbVie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and AbbVie Inc, you can compare the effects of market volatilities on Merck and AbbVie 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 AbbVie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and AbbVie.
Diversification Opportunities for Merck and AbbVie
Very weak diversification
The 3 months correlation between Merck and AbbVie is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and AbbVie Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AbbVie 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 Company are associated (or correlated) with AbbVie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AbbVie Inc has no effect on the direction of Merck i.e., Merck and AbbVie go up and down completely randomly.
Pair Corralation between Merck and AbbVie
Considering the 90-day investment horizon Merck Company is expected to generate 0.39 times more return on investment than AbbVie. However, Merck Company is 2.56 times less risky than AbbVie. It trades about -0.22 of its potential returns per unit of risk. AbbVie Inc is currently generating about -0.11 per unit of risk. If you would invest 10,664 in Merck Company on August 23, 2024 and sell it today you would lose (678.00) from holding Merck Company or give up 6.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. AbbVie Inc
Performance |
| Timeline |
| Merck Company |
| AbbVie Inc |
Merck and AbbVie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and AbbVie
The main advantage of trading using opposite Merck and AbbVie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, AbbVie 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 AbbVie will offset losses from the drop in AbbVie's long position.| Merck vs. Johnson Johnson | Merck vs. Small Cap Core | Merck vs. Freedom Holding Corp | Merck vs. Gfl Environmental Holdings |
| AbbVie vs. Johnson Johnson | AbbVie vs. Small Cap Core | AbbVie vs. Freedom Holding Corp | AbbVie vs. Gfl Environmental Holdings |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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