Correlation Between Astellas Pharma and Merck

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

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

Diversification Opportunities for Astellas Pharma and Merck

0.59

Correlation Coefficient

Astellas Pharma  Merck

Very weak diversification

The 3 months correlation between Astellas and Merck is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Astellas Pharma and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Astellas 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 Astellas Pharma 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 Astellas Pharma i.e., Astellas Pharma and Merck go up and down completely randomly.

Pair Corralation between Astellas Pharma and Merck

Assuming the 90 days horizon Astellas Pharma is expected to under-perform the Merck. In addition to that, Astellas Pharma is 3.1 times more volatile than Merck Company. It trades about -0.05 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  9,631  in Merck Company on September 16, 2024 and sell it today you would earn a total of  569.00  from holding Merck Company or generate 5.91% return on investment over 90 days.

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

Astellas Pharma  vs.  Merck Company

Astellas Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

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

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company 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 quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Astellas Pharma and Merck

The main advantage of trading using opposite Astellas Pharma and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Astellas 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.

The idea behind Astellas Pharma and Merck Company 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.