Correlation Between Merck and Abbott Laboratories
Can any of the company-specific risk be diversified away by investing in both Merck and Abbott Laboratories 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 Abbott Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Abbott Laboratories, you can compare the effects of market volatilities on Merck and Abbott Laboratories 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 Abbott Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Abbott Laboratories.
Diversification Opportunities for Merck and Abbott Laboratories
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Abbott is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories 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 Abbott Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbott Laboratories has no effect on the direction of Merck i.e., Merck and Abbott Laboratories go up and down completely randomly.
Pair Corralation between Merck and Abbott Laboratories
Considering the 90-day investment horizon Merck Company is expected to under-perform the Abbott Laboratories. In addition to that, Merck is 1.21 times more volatile than Abbott Laboratories. It trades about -0.1 of its total potential returns per unit of risk. Abbott Laboratories is currently generating about 0.11 per unit of volatility. If you would invest 10,184 in Abbott Laboratories on August 30, 2024 and sell it today you would earn a total of 1,711 from holding Abbott Laboratories or generate 16.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Abbott Laboratories
Performance |
| Timeline |
| Merck Company |
| Abbott Laboratories |
Merck and Abbott Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Abbott Laboratories
The main advantage of trading using opposite Merck and Abbott Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Abbott Laboratories 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 Abbott Laboratories will offset losses from the drop in Abbott Laboratories' long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
| Abbott Laboratories vs. AbbVie Inc | Abbott Laboratories vs. Eli Lilly and | Abbott Laboratories vs. Bristol Myers Squibb | Abbott Laboratories vs. Johnson Johnson |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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