Correlation Between Merck and Chugai Pharmaceutical

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

By analyzing existing cross correlation between Merck Company and Chugai Pharmaceutical Co, you can compare the effects of market volatilities on Merck and Chugai Pharmaceutical 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 Chugai Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Chugai Pharmaceutical.

Diversification Opportunities for Merck and Chugai Pharmaceutical

0.64

Correlation Coefficient

Merck  Chugai Pharmaceutical

Poor diversification

The 3 months correlation between Merck and Chugai is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Chugai Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chugai Pharmaceutical 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 Company are associated (or correlated) with Chugai Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chugai Pharmaceutical has no effect on the direction of Merck i.e., Merck and Chugai Pharmaceutical go up and down completely randomly.

Pair Corralation between Merck and Chugai Pharmaceutical

Considering the 90-day investment horizon Merck Company is expected to generate 0.52 times more return on investment than Chugai Pharmaceutical. However, Merck Company is 1.92 times less risky than Chugai Pharmaceutical. It trades about 0.22 of its potential returns per unit of risk. Chugai Pharmaceutical Co is currently generating about -0.11 per unit of risk. 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	Significant
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Chugai Pharmaceutical Co

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.

Chugai Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chugai Pharmaceutical Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators 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 Merck and Chugai Pharmaceutical

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

The idea behind Merck Company and Chugai Pharmaceutical 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.