Correlation Between Merck and Biogen

Can any of the company-specific risk be diversified away by investing in both Merck and Biogen 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 Merck and Biogen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Merck Co and Biogen Inc, you can compare the effects of market volatilities on Merck and Biogen 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 Merck with a short position of Biogen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Biogen.

Diversification Opportunities for Merck and Biogen

0.76

Correlation Coefficient

Merck  Biogen

Poor diversification

The 3 months correlation between Merck and Biogen is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen Inc and Merck 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 Merck Co are associated (or correlated) with Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of Merck i.e., Merck and Biogen go up and down completely randomly.

Pair Corralation between Merck and Biogen

Assuming the 90 days horizon Merck Co is expected to under-perform the Biogen. But the stock apears to be less risky and, when comparing its historical volatility, Merck Co is 1.02 times less risky than Biogen. The stock trades about -0.11 of its potential returns per unit of risk. The Biogen Inc is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  14,385  in Biogen Inc on December 28, 2024 and sell it today you would lose (1,235) from holding Biogen Inc or give up 8.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Merck Co  vs.  Biogen Inc

Merck

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Biogen Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Biogen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Merck and Biogen

The main advantage of trading using opposite Merck and Biogen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Biogen 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 Biogen will offset losses from the drop in Biogen's long position.

The idea behind Merck Co and Biogen Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.