Correlation Between GlaxoSmithKline PLC and Merck
Can any of the company-specific risk be diversified away by investing in both GlaxoSmithKline PLC 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 GlaxoSmithKline PLC and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GlaxoSmithKline PLC ADR and Merck Company, you can compare the effects of market volatilities on GlaxoSmithKline PLC 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 GlaxoSmithKline PLC with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of GlaxoSmithKline PLC and Merck.
Diversification Opportunities for GlaxoSmithKline PLC and Merck
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GlaxoSmithKline and Merck is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding GlaxoSmithKline PLC ADR and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and GlaxoSmithKline PLC 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 GlaxoSmithKline PLC ADR 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 GlaxoSmithKline PLC i.e., GlaxoSmithKline PLC and Merck go up and down completely randomly.
Pair Corralation between GlaxoSmithKline PLC and Merck
Considering the 90-day investment horizon GlaxoSmithKline PLC ADR is expected to under-perform the Merck. But the stock apears to be less risky and, when comparing its historical volatility, GlaxoSmithKline PLC ADR is 1.4 times less risky than Merck. The stock trades about -0.28 of its potential returns per unit of risk. The Merck Company is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 12,531 in Merck Company on January 24, 2024 and sell it today you would earn a total of 163.00 from holding Merck Company or generate 1.3% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
GlaxoSmithKline PLC ADR vs. Merck Company
Performance |
Timeline |
GlaxoSmithKline PLC ADR |
Merck Company |
GlaxoSmithKline PLC and Merck Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GlaxoSmithKline PLC and Merck
The main advantage of trading using opposite GlaxoSmithKline PLC and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GlaxoSmithKline PLC 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.GlaxoSmithKline PLC vs. Silver Spike Investment | GlaxoSmithKline PLC vs. Alkermes Plc | GlaxoSmithKline PLC vs. Eagle Pharmaceuticals | GlaxoSmithKline PLC vs. Evotec SE ADR |
Merck vs. Silver Spike Investment | Merck vs. Alkermes Plc | Merck vs. Eagle Pharmaceuticals | Merck vs. Evotec SE ADR |
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 the Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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