Merck – Genesis Risk Management

About the AI Report

The AI Report below explains in detail how Aidvisors (a.k.a. Artificially Intelligent Advisors) could have reduced the risk of financial loss inherent to the stock price of Merck (NYSE:MRK). It is based on the generation of AI known as Genesis Risk Management.

Find more on AI Report with the FAQ, Disclaimer and Roadmap.

About NYSE:MRK

  • Merck & Co. is an American multinational pharmaceutical company
  • The company has been a component of the Dow Jones Industrial Average since June 26, 1979
  • The company ranked No. 69 in the 2020 Fortune 500 list of the largest United States corporations by total revenue
  • The American company was established as the subsidiary of the German company, founded in 1668 by the Merck family, but was expropriated by the US government during World War I

The AI Report

Genesis Risk Management
applied to Merck & Co. Inc.


Overview
Annual Return of instead of
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Hypothetical Growth of $10,000
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Investment Strategy Facts
Target AudienceRisk-Averse Long-Term Investors
Investment MethodReinforcement Machine Learning
Success CriteriaReduced Risk – Increased Return
Underlying Asset Facts
AssetMerck & Co. Inc.
Stock SymbolNYSE:MRK
CategoryDrug Manufacturers
Summary of Genesis Risk Management

Genesis Risk Management is an investment strategy for risk-averse investors who want to gain exposure to the higher long-term returns of the stock market at the same time as they actively seek to reduce risks of financial loss.


Genesis Risk Management primary advantage is to continuously learn from the market and adapt to new situations. It uses machine learning techniques to determine the probability of threats and opportunities in the short-term. The machine learning techniques include algorithmic trading, simulation optimization, deep learning, ensemble learning, adaptive evolution chain and other proprietary techniques. It is not using day-trading techniques that are proven to be speculative and it is not solely using trading algorithms that are proven to misadapt over time.


Genesis Risk Management will sell the underlying asset to avoid taking unnecessary risks and buy back when it detects opportunities. Unlike day-trading techniques, it is targeting long-term return on the asset and it is actively limiting the amount of buy/sell transactions.


To conclude, Genesis Risk Management is about investing in the long-term while avoiding unnecessary risks in the short-term.

Risk reduced by
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With only transactions per year
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Avoided Decline

Avoiding decline to keep money available for future opportunities.

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Avoided Loss and Stronger Annual Return

Avoided loss ends up in both cumulative and stronger return.

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Genesis Risk Management
applied to Merck & Co. Inc.


Risk Management
Time Periods
Risk reduced by
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Risk reduction is a risk management technique that involves reducing the financial consequences of a loss. This includes reducing the severity of a loss, reducing its frequency, and making it less likely to occur overall.

With Genesis Risk Management, risk reduction is achieved by :
  • assessing short-term risk probability
  • preventing unnecessary risk
  • capitalizing on avoided losses
Risk Probability

Predicting the stock market is impossible. Assessing the short-term risk probability in the next few days is more realistic.

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Risk Prevention

Risk is made of known unknowns and unknown unknowns. Preventing known unknowns means selling when risk becomes probable.

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Avoided Decline

Risk management success is measured with avoided decline, which keeps more money available to capitalize on future opportunities.

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Risk Measures

Risk is traditionally measured with the standard measures shown below.

Merck & Co. Inc.Genesis Risk Management
Period Start Date
Period End Date
Maximum Drawdown (lower is better)
Downside Risk (lower is better)
Sortino Ratio (higher is better)
Historical Volatility (lower is better)
Sharpe Ratio (higher is better)
Beta (compared to underlying asset) (lower than 1.0 is better)

Genesis Risk Management
applied to Merck & Co. Inc.


Risk-Return Optimization
Time Periods
Return increased by
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Risk-return optimization is an investment technique that attempts to find the optimal balance between risk and return. One assumption in investing is that a higher degree of risk means a higher potential return. However, it is possible to reduce risk without missing much return. Machine learning allows to find a good balance and avoid taking unnecessary risks.

With Genesis Risk Management, risk-return optimization is achieved by :
  • reducing probability of negative return
  • avoiding important loss while realizing strong return
  • making cumulative return on avoided loss
  • aiming for the long-term
Negative Return Prevention

Risk-return optimization reduces probability, severity and frequency of negative return.

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Avoided Loss and Stronger Annual Return

A long-term combination of avoided loss and strong return is the result of a good balance between risk and return.

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Cumulative Return on Avoided Loss

Avoided loss is more money available to invest in strong return in future years, which ends up in cumulative return on avoided loss.

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* Missed return occurs because risk doesn’t always cause losses. Growth opportunities might be missed occasionally when trying to prevent risk. The most important in the long-term is for missed return to be compensated by avoided loss.

Hypothetical Growth of $10,000
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Risk-Return Measures

Risk-return balance is traditionally measured with the standard measures shown below.

Merck & Co. Inc.Genesis Risk Management
Period Start Date
Period End Date
Compound Annual Return (or Growth Rate) (higher is better)
Alpha (compared to underlying asset) (higher is better)
Beta (compared to underlying asset) (lower than 1.0 is better)
Sharpe Ratio (higher is better)
Sortino Ratio (higher is better)
Stability of Return (R-Squared to linear returns) (higher is better)

Genesis Risk Management
applied to Merck & Co. Inc.


Machine Learning
Time Periods
Artificial intelligence is the use and development of computer techniques that are able to learn and adapt by using machine learning and statistical models to analyze and draw inferences from patterns in data. Machine learning is the opposite of algorithmic trading, the latter is based on step-by-step instructions that don’t adapt to changes.

Genesis Risk Management is using the following techniques :
  • simulation optimization
  • predictive analysis
  • ensemble reinforcement learning
  • synthesized risk evaluation
  • hyperparameter optimization
Simulation Optimization

Simulation optimization is collecting intelligence about trading algorithms that would have worked the best in the past.

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* Trading algorithms are never exposed to future data when they are simulated and benchmarked.

Predictive Analysis

Predictive analysis is building intelligence about what would have worked best in the future based on past knowledge.

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* Predictors (neural nets, decision trees, support-vector machines, etc.) are never exposed to future data when they are trained.

Ensemble Reinforcement Learning

Ensemble reinforcement learning is assembling multiple predictors together to create a ‘big picture thinking’ kind of intelligence.

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* Ensembles of predictors are never exposed to future data when they are trained and optimized.

Synthesized Risk Evaluation

Synthesized risk evaluation is using ensembles to predict risk probability and suggest preventive action.

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* Risk probability is predicted before the stock market is closed and is never based on future data.

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* Preventive actions are suggested before the stock market is closed and are never based on future data.

Hyperparameter Optimization

Hyperparameter optimization is finding an appropriate risk response that provides a good balance between risk and return.

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* To conclude that a machine learning pipeline is functional, the risk response above should demonstrate an indisputable convergence toward an inflection point which represent a good balance between risk and return. Such convergence toward one or a few points is evidence that the pipeline learned the trade-off between risk and return and its higher annual return is not the result of mere luck. A disfunctional machine learning pipeline would look like a chaotic cloud of points without any logic.

Genesis Risk Management
applied to Merck & Co. Inc.


Decision Making
Time Periods
Decision Making is based on cost efficiency, i.e. optimizing feasible outcome with low expenditures of resources. In this case, the cost increases proportionally with the transaction rate required to execute the strategy. But even more important, the cost increases when avoidable loss are not avoided because of faults to execute transactions in a timely manner.

With Genesis Risk Management, cost efficiency is achieved by :
  • reducing the transaction cost
  • reducing the cost of faults
Transaction cost of transactions per year

The low transaction rate allows to execute the strategy manually and may be eligible to tax-free account in your country.

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Cost of faults of missed return per fault

Preventive actions are suggested before the stock market is closed. All financial measures and charts in this report are based on the assumption that preventive actions would have been executed before the stock market is closed.

The chart below shows what would be the worst result if the preventive actions would NOT be executed on a timely manner, i.e. with a worst-case delay of one open-market day later.

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Suggested Preventive Actions

As shown below, Genesis Risk Management is not always suggesting actions that will end-up in avoided loss. Sometimes missed return occurs because the risk may have been an opportunity instead of a threat.

The goal given to the machine learning pipeline is to avoid taking unnecessary risks and to find a good balance between risk and return. A good balance between risk and return would provide more avoided loss than missed return.

IMPORTANT NOTICE: Do not use the preventive actions below for your trades since they may be out of date. You must subscribe to the notifications to get up to date preventive actions.

IMPORTANT NOTICE: Do not use the preventive actions above for your trades since they may be out of date. You must subscribe to the notifications to get up to date preventive actions.

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