Correlation Between Takeda Pharmaceutical and Merck

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

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

Diversification Opportunities for Takeda Pharmaceutical and Merck

0.31

Correlation Coefficient

Takeda Pharmaceutical  Merck

Weak diversification

The 3 months correlation between Takeda and Merck is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Takeda Pharmaceutical and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Takeda Pharmaceutical 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 Takeda Pharmaceutical are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Takeda Pharmaceutical i.e., Takeda Pharmaceutical and Merck go up and down completely randomly.

Pair Corralation between Takeda Pharmaceutical and Merck

Assuming the 90 days trading horizon Takeda Pharmaceutical is expected to generate 0.71 times more return on investment than Merck. However, Takeda Pharmaceutical is 1.4 times less risky than Merck. It trades about -0.04 of its potential returns per unit of risk. Merck Company is currently generating about -0.11 per unit of risk. If you would invest  1,277  in Takeda Pharmaceutical on September 23, 2024 and sell it today you would lose (47.00) from holding Takeda Pharmaceutical or give up 3.68% of portfolio value over 90 days.

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

Takeda Pharmaceutical  vs.  Merck Company

Takeda Pharmaceutical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Takeda Pharmaceutical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Takeda Pharmaceutical is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Takeda Pharmaceutical and Merck

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

The idea behind Takeda Pharmaceutical and Merck Company 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.