Correlation Between Merck and Viatris

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

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

Diversification Opportunities for Merck and Viatris

0.45

Correlation Coefficient

Merck  Viatris

Very weak diversification

The 3 months correlation between Merck and Viatris is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Viatris in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Viatris 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 Viatris. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Viatris has no effect on the direction of Merck i.e., Merck and Viatris go up and down completely randomly.

Pair Corralation between Merck and Viatris

Considering the 90-day investment horizon Merck Company is expected to generate 0.75 times more return on investment than Viatris. However, Merck Company is 1.34 times less risky than Viatris. It trades about -0.07 of its potential returns per unit of risk. Viatris is currently generating about -0.22 per unit of risk. 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	Weak
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Viatris

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.

Viatris

Risk-Adjusted Performance

Very Weak

Over the last 90 days Viatris 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 basic indicators 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.

Pair Trading with Merck and Viatris

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

The idea behind Merck Company and Viatris 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.