Correlation Between Roche Holding and Merck
Can any of the company-specific risk be diversified away by investing in both Roche Holding 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 Roche Holding and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Roche Holding Ltd and Merck Company, you can compare the effects of market volatilities on Roche Holding 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 Roche Holding with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Roche Holding and Merck.
Diversification Opportunities for Roche Holding and Merck
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Roche and Merck is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding Ltd and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Roche Holding 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 Roche Holding Ltd 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 Roche Holding i.e., Roche Holding and Merck go up and down completely randomly.
Pair Corralation between Roche Holding and Merck
Assuming the 90 days horizon Roche Holding Ltd is expected to under-perform the Merck. In addition to that, Roche Holding is 1.0 times more volatile than Merck Company. It trades about -0.34 of its total potential returns per unit of risk. Merck Company is currently generating about -0.22 per unit of volatility. If you would invest 10,664 in Merck Company on August 23, 2024 and sell it today you would lose (678.00) from holding Merck Company or give up 6.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Roche Holding Ltd vs. Merck Company
Performance |
| Timeline |
| Roche Holding |
| Merck Company |
Roche Holding and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Roche Holding and Merck
The main advantage of trading using opposite Roche Holding and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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.| Roche Holding vs. Sanofi ADR | Roche Holding vs. AstraZeneca PLC ADR | Roche Holding vs. GlaxoSmithKline PLC ADR | Roche Holding vs. Merck Company |
| Merck vs. Johnson Johnson | Merck vs. Small Cap Core | Merck vs. Freedom Holding Corp | Merck vs. Gfl Environmental Holdings |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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