Correlation Between Merck and Daiichi Sankyo
Can any of the company-specific risk be diversified away by investing in both Merck and Daiichi Sankyo 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 Daiichi Sankyo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Daiichi Sankyo, you can compare the effects of market volatilities on Merck and Daiichi Sankyo 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 Daiichi Sankyo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Daiichi Sankyo.
Diversification Opportunities for Merck and Daiichi Sankyo
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Daiichi is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Daiichi Sankyo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Daiichi Sankyo 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 Daiichi Sankyo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Daiichi Sankyo has no effect on the direction of Merck i.e., Merck and Daiichi Sankyo go up and down completely randomly.
Pair Corralation between Merck and Daiichi Sankyo
Considering the 90-day investment horizon Merck Company is expected to generate 0.22 times more return on investment than Daiichi Sankyo. However, Merck Company is 4.64 times less risky than Daiichi Sankyo. It trades about -0.01 of its potential returns per unit of risk. Daiichi Sankyo is currently generating about -0.06 per unit of risk. If you would invest 10,373 in Merck Company on August 30, 2024 and sell it today you would lose (61.00) from holding Merck Company or give up 0.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. Daiichi Sankyo
Performance |
| Timeline |
| Merck Company |
| Daiichi Sankyo |
Merck and Daiichi Sankyo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and Daiichi Sankyo
The main advantage of trading using opposite Merck and Daiichi Sankyo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Daiichi Sankyo 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 Daiichi Sankyo will offset losses from the drop in Daiichi Sankyo's long position.| Merck vs. Emergent Biosolutions | Merck vs. Bausch Health Companies | Merck vs. Neurocrine Biosciences | Merck vs. Teva Pharma Industries |
| Daiichi Sankyo vs. Astellas Pharma | Daiichi Sankyo vs. Bristol Myers Squibb | Daiichi Sankyo vs. Bayer AG | Daiichi Sankyo vs. AstraZeneca PLC |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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