Correlation Between Roche Holding and Merck

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

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

Diversification Opportunities for Roche Holding and Merck

-0.76

Correlation Coefficient

Roche Holding  Merck

Pay attention - limited upside

The 3 months correlation between Roche and Merck is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Roche Holding Ltd and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and Roche Holding 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 Roche Holding Ltd 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 Roche Holding i.e., Roche Holding and Merck go up and down completely randomly.

Pair Corralation between Roche Holding and Merck

Assuming the 90 days trading horizon Roche Holding Ltd is expected to generate 0.89 times more return on investment than Merck. However, Roche Holding Ltd is 1.12 times less risky than Merck. It trades about 0.18 of its potential returns per unit of risk. Merck Co is currently generating about -0.08 per unit of risk. If you would invest  3,334  in Roche Holding Ltd on December 26, 2024 and sell it today you would earn a total of  666.00  from holding Roche Holding Ltd or generate 19.98% return on investment over 90 days.

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

Roche Holding Ltd  vs.  Merck Co

Roche Holding

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Roche Holding Ltd are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Roche Holding reported solid returns over the last few months and may actually be approaching a breakup point.

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 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.

Pair Trading with Roche Holding and Merck

The main advantage of trading using opposite Roche Holding and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roche Holding 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 Roche Holding Ltd 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.