Correlation Between Merck and Amgen

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

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

Diversification Opportunities for Merck and Amgen

0.94

Correlation Coefficient

Merck  Amgen

Almost no diversification

The 3 months correlation between Merck and Amgen is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Amgen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amgen 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 Amgen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amgen Inc has no effect on the direction of Merck i.e., Merck and Amgen go up and down completely randomly.

Pair Corralation between Merck and Amgen

Considering the 90-day investment horizon Merck Company is expected to under-perform the Amgen. In addition to that, Merck is 1.17 times more volatile than Amgen Inc. It trades about -0.04 of its total potential returns per unit of risk. Amgen Inc is currently generating about -0.03 per unit of volatility. If you would invest  29,024  in Amgen Inc on February 18, 2025 and sell it today you would lose (1,439) from holding Amgen Inc or give up 4.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Merck Company  vs.  Amgen Inc

Merck Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Amgen Inc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Merck and Amgen

The main advantage of trading using opposite Merck and Amgen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, Amgen 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 Amgen will offset losses from the drop in Amgen's long position.

The idea behind Merck Company and Amgen 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.

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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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.