Correlation Between Eli Lilly and Merck

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Can any of the company-specific risk be diversified away by investing in both Eli Lilly 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 Eli Lilly and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eli Lilly And and Merck Company, you can compare the effects of market volatilities on Eli Lilly 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 Eli Lilly with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eli Lilly and Merck.

Diversification Opportunities for Eli Lilly and Merck

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between Eli Lilly and Merck is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Eli Lilly And and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Eli Lilly 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 Eli Lilly And 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 Eli Lilly i.e., Eli Lilly and Merck go up and down completely randomly.

Pair Corralation between Eli Lilly and Merck

Considering the 90-day investment horizon Eli Lilly And is expected to generate 1.47 times more return on investment than Merck. However, Eli Lilly is 1.47 times more volatile than Merck Company. It trades about 0.09 of its potential returns per unit of risk. Merck Company is currently generating about 0.03 per unit of risk. If you would invest  14,647  in Eli Lilly And on July 5, 2022 and sell it today you would earn a total of  17,139  from holding Eli Lilly And or generate 117.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Eli Lilly And  vs.  Merck Company

 Performance (%) 
       Timeline  
Eli Lilly And 
Eli Lilly Performance
0 of 100
Over the last 90 days Eli Lilly And has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Eli Lilly is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Eli Lilly Price Channel

Merck Company 
Merck Performance
0 of 100
Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merck is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Merck Price Channel

Eli Lilly and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Eli Lilly and Merck

The main advantage of trading using opposite Eli Lilly and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eli Lilly 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.
Eli Lilly vs. Amazon Inc
The idea behind Eli Lilly And 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.
Merck vs. Amazon Inc
Check out your portfolio center. 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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