Correlation Between Biogen and Merck

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

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

Diversification Opportunities for Biogen and Merck

0.76

Correlation Coefficient

Biogen  Merck

Poor diversification

The 3 months correlation between Biogen and Merck is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Biogen Inc and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Biogen 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 Biogen 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 has no effect on the direction of Biogen i.e., Biogen and Merck go up and down completely randomly.

Pair Corralation between Biogen and Merck

Assuming the 90 days horizon Biogen Inc is expected to generate 1.02 times more return on investment than Merck. However, Biogen is 1.02 times more volatile than Merck Co. It trades about -0.06 of its potential returns per unit of risk. Merck Co is currently generating about -0.11 per unit of risk. 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

Biogen Inc  vs.  Merck Co

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.

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.

Pair Trading with Biogen and Merck

The main advantage of trading using opposite Biogen and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biogen 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 Biogen Inc and Merck Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.