Correlation Between Chugai Pharmaceutical and Merck

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

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

Diversification Opportunities for Chugai Pharmaceutical and Merck

-0.21

Correlation Coefficient

Chugai Pharmaceutical  Merck

Very good diversification

The 3 months correlation between Chugai and Merck is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Chugai Pharmaceutical Co and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Chugai 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 Chugai Pharmaceutical Co 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 Chugai Pharmaceutical i.e., Chugai Pharmaceutical and Merck go up and down completely randomly.

Pair Corralation between Chugai Pharmaceutical and Merck

Assuming the 90 days horizon Chugai Pharmaceutical Co is expected to under-perform the Merck. In addition to that, Chugai Pharmaceutical is 3.48 times more volatile than Merck Company. It trades about -0.02 of its total potential returns per unit of risk. Merck Company is currently generating about -0.02 per unit of volatility. If you would invest  12,863  in Merck Company on January 24, 2024 and sell it today you would lose (169.00) from holding Merck Company or give up 1.31% of portfolio value over 90 days.

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

Chugai Pharmaceutical Co  vs.  Merck Company

Chugai Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chugai Pharmaceutical Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Merck Company

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Merck may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Chugai Pharmaceutical and Merck

The main advantage of trading using opposite Chugai Pharmaceutical and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chugai 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 Chugai Pharmaceutical Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.