Correlation Between Merck and Insmed

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Can any of the company-specific risk be diversified away by investing in both Merck and Insmed 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 Merck and Insmed into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and Insmed Inc, you can compare the effects of market volatilities on Merck and Insmed 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 Merck with a short position of Insmed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Insmed.

Diversification Opportunities for Merck and Insmed

  Correlation Coefficient

Modest diversification

The 3 months correlation between Merck and Insmed is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Insmed Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insmed Inc and Merck 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 Merck Company are associated (or correlated) with Insmed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insmed Inc has no effect on the direction of Merck i.e., Merck and Insmed go up and down completely randomly.

Pair Corralation between Merck and Insmed

Considering the 90-day investment horizon Merck is expected to generate 1.01 times less return on investment than Insmed. But when comparing it to its historical volatility, Merck Company is 2.61 times less risky than Insmed. It trades about 0.09 of its potential returns per unit of risk. Insmed Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,120  in Insmed Inc on December 3, 2023 and sell it today you would earn a total of  686.00  from holding Insmed Inc or generate 32.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
ValuesDaily Returns

Merck Company  vs.  Insmed Inc

Merck Company 

Risk-Adjusted Performance

24 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Merck disclosed solid returns over the last few months and may actually be approaching a breakup point.
Insmed Inc 

Risk-Adjusted Performance

2 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Insmed Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Insmed is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Merck and Insmed Volatility Contrast

   Predicted Return Density   

Pair Trading with Merck and Insmed

The main advantage of trading using opposite Merck and Insmed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Insmed 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 Insmed will offset losses from the drop in Insmed's long position.
The idea behind Merck Company and Insmed Inc 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.
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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