Correlation Between Merck and Biogen

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

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

Diversification Opportunities for Merck and Biogen

0.21

Correlation Coefficient

Merck  Biogen

Modest diversification

The 3 months correlation between Merck and Biogen is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Biogen Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biogen 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 Biogen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biogen Inc has no effect on the direction of Merck i.e., Merck and Biogen go up and down completely randomly.

Pair Corralation between Merck and Biogen

Considering the 90-day investment horizon Merck is expected to generate 3.05 times less return on investment than Biogen. But when comparing it to its historical volatility, Merck Company is 1.04 times less risky than Biogen. It trades about 0.03 of its potential returns per unit of risk. Biogen Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,884  in Biogen Inc on April 25, 2025 and sell it today you would earn a total of  1,214  from holding Biogen Inc or generate 10.22% return on investment over 90 days.

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

Merck Company  vs.  Biogen Inc

Merck Company

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Biogen Inc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Biogen Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Biogen may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Merck and Biogen

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

The idea behind Merck Company and Biogen 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.