Correlation Between Biomarin Pharmaceutical and Merck

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

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

Diversification Opportunities for Biomarin Pharmaceutical and Merck

-0.23

Correlation Coefficient

Biomarin Pharmaceutical  Merck

Very good diversification

The 3 months correlation between Biomarin and Merck is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Biomarin Pharmaceutical and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Biomarin Pharmaceutical 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 Biomarin Pharmaceutical 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 Company has no effect on the direction of Biomarin Pharmaceutical i.e., Biomarin Pharmaceutical and Merck go up and down completely randomly.

Pair Corralation between Biomarin Pharmaceutical and Merck

Given the investment horizon of 90 days Biomarin Pharmaceutical is expected to under-perform the Merck. In addition to that, Biomarin Pharmaceutical is 1.07 times more volatile than Merck Company. It trades about -0.05 of its total potential returns per unit of risk. Merck Company is currently generating about 0.08 per unit of volatility. If you would invest  11,868  in Merck Company on January 20, 2024 and sell it today you would earn a total of  655.00  from holding Merck Company or generate 5.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Biomarin Pharmaceutical  vs.  Merck Company

Biomarin Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Merck Company

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Biomarin Pharmaceutical and Merck

The main advantage of trading using opposite Biomarin Pharmaceutical and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biomarin Pharmaceutical 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 Biomarin Pharmaceutical and Merck Company 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.