Correlation Between Novartis and Merck
Can any of the company-specific risk be diversified away by investing in both Novartis and Merck 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 Novartis and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Novartis AG ADR and Merck Company, you can compare the effects of market volatilities on Novartis and Merck 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 Novartis with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Novartis and Merck.
Diversification Opportunities for Novartis and Merck
Almost no diversification
The 3 months correlation between Novartis and Merck is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Novartis AG ADR and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Novartis 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 Novartis AG ADR are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Novartis i.e., Novartis and Merck go up and down completely randomly.
Pair Corralation between Novartis and Merck
Considering the 90-day investment horizon Novartis AG ADR is expected to generate 0.89 times more return on investment than Merck. However, Novartis AG ADR is 1.13 times less risky than Merck. It trades about 0.05 of its potential returns per unit of risk. Merck Company is currently generating about 0.0 per unit of risk. If you would invest 7,993 in Novartis AG ADR on August 28, 2024 and sell it today you would earn a total of 2,361 from holding Novartis AG ADR or generate 29.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Novartis AG ADR vs. Merck Company
Performance |
| Timeline |
| Novartis AG ADR |
| Merck Company |
Novartis and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Novartis and Merck
The main advantage of trading using opposite Novartis and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Novartis position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Novartis vs. AstraZeneca PLC ADR | Novartis vs. GlaxoSmithKline PLC ADR | Novartis vs. Roche Holding Ltd | Novartis vs. Bristol Myers Squibb |
| Merck vs. Capricor Therapeutics | Merck vs. Soleno Therapeutics | Merck vs. Bio Path Holdings | Merck vs. Moleculin Biotech |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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