Correlation Between Sanofi and Merck
Can any of the company-specific risk be diversified away by investing in both Sanofi 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 Sanofi and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sanofi and Merck Company, you can compare the effects of market volatilities on Sanofi 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 Sanofi with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sanofi and Merck.
Diversification Opportunities for Sanofi and Merck
Very weak diversification
The 3 months correlation between Sanofi and Merck is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sanofi and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Sanofi 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 Sanofi 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 Sanofi i.e., Sanofi and Merck go up and down completely randomly.
Pair Corralation between Sanofi and Merck
Assuming the 90 days trading horizon Sanofi is expected to generate 1.32 times more return on investment than Merck. However, Sanofi is 1.32 times more volatile than Merck Company. It trades about 0.02 of its potential returns per unit of risk. Merck Company is currently generating about 0.01 per unit of risk. If you would invest 88,155 in Sanofi on September 3, 2024 and sell it today you would earn a total of 10,795 from holding Sanofi or generate 12.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
Sanofi vs. Merck Company
Performance |
| Timeline |
| Sanofi |
| Merck Company |
Sanofi and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sanofi and Merck
The main advantage of trading using opposite Sanofi and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sanofi 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.| Sanofi vs. Genworth Financial | Sanofi vs. Grupo Carso SAB | Sanofi vs. McEwen Mining | Sanofi vs. Cognizant Technology Solutions |
| Merck vs. UnitedHealth Group Incorporated | Merck vs. Costco Wholesale | Merck vs. First Republic Bank | Merck vs. McEwen 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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