Correlation Between Astellas Pharma and Merck KGaA

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

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

Diversification Opportunities for Astellas Pharma and Merck KGaA

0.64

Correlation Coefficient

Astellas Pharma  Merck KGaA

Poor diversification

The 3 months correlation between Astellas and Merck is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Astellas Pharma and Merck KGaA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA ADR and Astellas Pharma 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 Astellas Pharma are associated (or correlated) with Merck KGaA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck KGaA ADR has no effect on the direction of Astellas Pharma i.e., Astellas Pharma and Merck KGaA go up and down completely randomly.

Pair Corralation between Astellas Pharma and Merck KGaA

Assuming the 90 days horizon Astellas Pharma is expected to under-perform the Merck KGaA. In addition to that, Astellas Pharma is 2.67 times more volatile than Merck KGaA ADR. It trades about -0.13 of its total potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.11 per unit of volatility. If you would invest  2,947  in Merck KGaA ADR on October 6, 2024 and sell it today you would lose (64.00) from holding Merck KGaA ADR or give up 2.17% of portfolio value over 90 days.

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

Astellas Pharma  vs.  Merck KGaA ADR

Astellas Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Astellas Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Merck KGaA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck KGaA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Astellas Pharma and Merck KGaA

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

The idea behind Astellas Pharma and Merck KGaA ADR 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.