Correlation Between Teva Pharma and Merck
Can any of the company-specific risk be diversified away by investing in both Teva Pharma 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 Teva Pharma and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Teva Pharma Industries and Merck Company, you can compare the effects of market volatilities on Teva Pharma 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 Teva Pharma with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Teva Pharma and Merck.
Diversification Opportunities for Teva Pharma and Merck
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Teva and Merck is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Teva Pharma Industries and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Teva Pharma 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 Teva Pharma Industries 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 Teva Pharma i.e., Teva Pharma and Merck go up and down completely randomly.
Pair Corralation between Teva Pharma and Merck
Given the investment horizon of 90 days Teva Pharma Industries is expected to generate 1.72 times more return on investment than Merck. However, Teva Pharma is 1.72 times more volatile than Merck Company. It trades about 0.11 of its potential returns per unit of risk. Merck Company is currently generating about 0.0 per unit of risk. If you would invest 731.00 in Teva Pharma Industries on September 2, 2024 and sell it today you would earn a total of 947.00 from holding Teva Pharma Industries or generate 129.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Teva Pharma Industries vs. Merck Company
Performance |
| Timeline |
| Teva Pharma Industries |
| Merck Company |
Teva Pharma and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Teva Pharma and Merck
The main advantage of trading using opposite Teva Pharma and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teva Pharma 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.| Teva Pharma vs. Haleon plc | Teva Pharma vs. Bausch Health Companies | Teva Pharma vs. Zoetis Inc | Teva Pharma vs. Takeda Pharmaceutical Co |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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