Correlation Between Merck and Vir Biotechnology

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

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

Diversification Opportunities for Merck and Vir Biotechnology

0.78

Correlation Coefficient

Merck  Vir Biotechnology

Poor diversification

The 3 months correlation between Merck and Vir is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Vir Biotechnology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vir Biotechnology 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 Vir Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vir Biotechnology has no effect on the direction of Merck i.e., Merck and Vir Biotechnology go up and down completely randomly.

Pair Corralation between Merck and Vir Biotechnology

Considering the 90-day investment horizon Merck Company is expected to generate 0.52 times more return on investment than Vir Biotechnology. However, Merck Company is 1.93 times less risky than Vir Biotechnology. It trades about -0.02 of its potential returns per unit of risk. Vir Biotechnology is currently generating about -0.07 per unit of risk. If you would invest  8,202  in Merck Company on May 5, 2025 and sell it today you would lose (273.00) from holding Merck Company or give up 3.33% of portfolio value over 90 days.

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

Merck Company  vs.  Vir Biotechnology

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.

Vir Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vir Biotechnology has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in September 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Merck and Vir Biotechnology

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

The idea behind Merck Company and Vir Biotechnology 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.