Correlation Between Merck and Perrigo Company

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

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

Diversification Opportunities for Merck and Perrigo Company

-0.33

Correlation Coefficient

Merck  Perrigo Company

Very good diversification

The 3 months correlation between Merck and Perrigo is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Perrigo Company PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perrigo Company 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 Perrigo Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perrigo Company has no effect on the direction of Merck i.e., Merck and Perrigo Company go up and down completely randomly.

Pair Corralation between Merck and Perrigo Company

Considering the 90-day investment horizon Merck Company is expected to generate 0.67 times more return on investment than Perrigo Company. However, Merck Company is 1.5 times less risky than Perrigo Company. It trades about -0.07 of its potential returns per unit of risk. Perrigo Company PLC is currently generating about -0.16 per unit of risk. If you would invest  9,937  in Merck Company on October 24, 2024 and sell it today you would lose (145.00) from holding Merck Company or give up 1.46% of portfolio value over 90 days.

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

Merck Company  vs.  Perrigo Company PLC

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 latest unsteady 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.

Perrigo Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Perrigo Company PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Perrigo Company is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Perrigo Company

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

The idea behind Merck Company and Perrigo Company PLC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.