Correlation Between Biomarin Pharmaceutical and Merck

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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

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Biomarin and Merck is 0.84. 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 generate 1.03 times less return on investment than Merck. In addition to that, Biomarin Pharmaceutical is 1.48 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  6,614  in Merck Company on October 30, 2022 and sell it today you would earn a total of  3,924  from holding Merck Company or generate 59.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Biomarin Pharmaceutical  vs.  Merck Company

 Performance (%) 
       Timeline  
Biomarin Pharmaceutical 
Biomarin Performance
19 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Biomarin Pharmaceutical are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Biomarin Pharmaceutical disclosed solid returns over the last few months and may actually be approaching a breakup point.

Biomarin Price Channel

Merck Company 
Merck Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Biomarin Pharmaceutical and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

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.
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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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Check out your portfolio center. 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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