Correlation Between Emergent Biosolutions and Merck

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

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

Diversification Opportunities for Emergent Biosolutions and Merck

0.11

Correlation Coefficient

Emergent Biosolutions  Merck

Average diversification

The 3 months correlation between Emergent and Merck is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Emergent Biosolutions and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Emergent Biosolutions 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 Emergent Biosolutions 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 Emergent Biosolutions i.e., Emergent Biosolutions and Merck go up and down completely randomly.

Pair Corralation between Emergent Biosolutions and Merck

Considering the 90-day investment horizon Emergent Biosolutions is expected to under-perform the Merck. In addition to that, Emergent Biosolutions is 2.47 times more volatile than Merck Company. It trades about -0.23 of its total potential returns per unit of risk. Merck Company is currently generating about -0.07 per unit of volatility. If you would invest  9,753  in Merck Company on December 28, 2024 and sell it today you would lose (830.00) from holding Merck Company or give up 8.51% of portfolio value over 90 days.

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

Emergent Biosolutions  vs.  Merck Company

Emergent Biosolutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emergent Biosolutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Merck Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Emergent Biosolutions and Merck

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

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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.