Correlation Between Merck and Kezar Life

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

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

Diversification Opportunities for Merck and Kezar Life

0.56

Correlation Coefficient

Merck  Kezar Life

Very weak diversification

The 3 months correlation between Merck and Kezar is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Kezar Life Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kezar Life Sciences 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 Kezar Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kezar Life Sciences has no effect on the direction of Merck i.e., Merck and Kezar Life go up and down completely randomly.

Pair Corralation between Merck and Kezar Life

Considering the 90-day investment horizon Merck Company is expected to generate 0.62 times more return on investment than Kezar Life. However, Merck Company is 1.62 times less risky than Kezar Life. It trades about -0.1 of its potential returns per unit of risk. Kezar Life Sciences is currently generating about -0.13 per unit of risk. If you would invest  9,885  in Merck Company on December 27, 2024 and sell it today you would lose (1,074) from holding Merck Company or give up 10.86% of portfolio value over 90 days.

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

Merck Company  vs.  Kezar Life Sciences

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 abnormal 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.

Kezar Life Sciences

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kezar Life Sciences has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Merck and Kezar Life

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

The idea behind Merck Company and Kezar Life Sciences 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.