Correlation Between Merck and EXACT Sciences

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

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

Diversification Opportunities for Merck and EXACT Sciences

-0.56

Correlation Coefficient

Merck  EXACT Sciences

Excellent diversification

The 3 months correlation between Merck and EXACT is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and EXACT Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXACT Sciences 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 EXACT Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXACT Sciences has no effect on the direction of Merck i.e., Merck and EXACT Sciences go up and down completely randomly.

Pair Corralation between Merck and EXACT Sciences

Considering the 90-day investment horizon Merck is expected to generate 1.89 times less return on investment than EXACT Sciences. But when comparing it to its historical volatility, Merck Company is 1.26 times less risky than EXACT Sciences. It trades about 0.01 of its potential returns per unit of risk. EXACT Sciences is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,716  in EXACT Sciences on May 1, 2025 and sell it today you would earn a total of  38.00  from holding EXACT Sciences or generate 0.81% return on investment over 90 days.

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

Merck Company  vs.  EXACT Sciences

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.

EXACT Sciences

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EXACT Sciences are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, EXACT Sciences is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merck and EXACT Sciences

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

The idea behind Merck Company and EXACT Sciences 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.