Correlation Between Amgen and Merck

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

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

Diversification Opportunities for Amgen and Merck

0.39

Correlation Coefficient

Amgen  Merck

Weak diversification

The 3 months correlation between Amgen and Merck is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Amgen Inc and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Amgen 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 Amgen Inc 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 Amgen i.e., Amgen and Merck go up and down completely randomly.

Pair Corralation between Amgen and Merck

Assuming the 90 days trading horizon Amgen Inc is expected to under-perform the Merck. In addition to that, Amgen is 1.32 times more volatile than Merck Company. It trades about -0.12 of its total potential returns per unit of risk. Merck Company is currently generating about -0.09 per unit of volatility. If you would invest  223,618  in Merck Company on September 12, 2024 and sell it today you would lose (19,973) from holding Merck Company or give up 8.93% of portfolio value over 90 days.

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

Amgen Inc  vs.  Merck Company

Amgen Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amgen Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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. In spite of latest weak performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Amgen and Merck

The main advantage of trading using opposite Amgen and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amgen 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 Amgen Inc 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.