Correlation Between Pfizer and Merck
Can any of the company-specific risk be diversified away by investing in both Pfizer 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 Pfizer and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pfizer Inc and Merck Company, you can compare the effects of market volatilities on Pfizer 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 Pfizer with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pfizer and Merck.
Diversification Opportunities for Pfizer and Merck
Very poor diversification
The 3 months correlation between Pfizer and Merck is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Pfizer Inc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Pfizer 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 Pfizer Inc 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 Pfizer i.e., Pfizer and Merck go up and down completely randomly.
Pair Corralation between Pfizer and Merck
Assuming the 90 days trading horizon Pfizer Inc is expected to generate 1.15 times more return on investment than Merck. However, Pfizer is 1.15 times more volatile than Merck Company. It trades about -0.09 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest 925,000 in Pfizer Inc on November 2, 2024 and sell it today you would lose (135,000) from holding Pfizer Inc or give up 14.59% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pfizer Inc vs. Merck Company
Performance |
| Timeline |
| Pfizer Inc |
| Merck Company |
Pfizer and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pfizer and Merck
The main advantage of trading using opposite Pfizer and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pfizer 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.| Pfizer vs. Telecom Argentina | Pfizer vs. Harmony Gold Mining | Pfizer vs. Transportadora de Gas | Pfizer vs. Agrometal SAI |
| Merck vs. Telecom Argentina | Merck vs. United States Steel | Merck vs. Agrometal SAI | Merck vs. Harmony Gold Mining |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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