Correlation Between Merck and NOVARTIS

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Can any of the company-specific risk be diversified away by investing in both Merck and NOVARTIS 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 NOVARTIS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and NOVARTIS CAPITAL P, you can compare the effects of market volatilities on Merck and NOVARTIS 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 NOVARTIS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and NOVARTIS.

Diversification Opportunities for Merck and NOVARTIS

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Merck and NOVARTIS is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and NOVARTIS CAPITAL P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOVARTIS CAPITAL P 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 NOVARTIS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOVARTIS CAPITAL P has no effect on the direction of Merck i.e., Merck and NOVARTIS go up and down completely randomly.

Pair Corralation between Merck and NOVARTIS

Considering the 90-day investment horizon Merck Company is expected to generate 4.34 times more return on investment than NOVARTIS. However, Merck is 4.34 times more volatile than NOVARTIS CAPITAL P. It trades about 0.0 of its potential returns per unit of risk. NOVARTIS CAPITAL P is currently generating about 0.01 per unit of risk. If you would invest  10,012  in Merck Company on November 1, 2024 and sell it today you would lose (117.00) from holding Merck Company or give up 1.17% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy97.68%
ValuesDaily Returns

Merck Company  vs.  NOVARTIS CAPITAL P

 Performance 
       Timeline  
Merck Company 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
NOVARTIS CAPITAL P 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days NOVARTIS CAPITAL P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NOVARTIS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck and NOVARTIS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merck and NOVARTIS

The main advantage of trading using opposite Merck and NOVARTIS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, NOVARTIS 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 NOVARTIS will offset losses from the drop in NOVARTIS's long position.
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The idea behind Merck Company and NOVARTIS CAPITAL P pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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