Correlation Between CanSino Biologics and Merck KGaA

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

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

Diversification Opportunities for CanSino Biologics and Merck KGaA

-0.67

Correlation Coefficient

CanSino Biologics  Merck KGaA

Excellent diversification

The 3 months correlation between CanSino and Merck is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding CanSino Biologics and Merck KGaA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA and CanSino Biologics 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 CanSino Biologics 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 has no effect on the direction of CanSino Biologics i.e., CanSino Biologics and Merck KGaA go up and down completely randomly.

Pair Corralation between CanSino Biologics and Merck KGaA

Assuming the 90 days trading horizon CanSino Biologics is expected to under-perform the Merck KGaA. In addition to that, CanSino Biologics is 3.3 times more volatile than Merck KGaA. It trades about -0.21 of its total potential returns per unit of risk. Merck KGaA is currently generating about 0.09 per unit of volatility. If you would invest  14,070  in Merck KGaA on October 15, 2024 and sell it today you would earn a total of  185.00  from holding Merck KGaA or generate 1.31% return on investment over 90 days.

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

CanSino Biologics  vs.  Merck KGaA

CanSino Biologics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CanSino Biologics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CanSino Biologics unveiled solid returns over the last few months and may actually be approaching a breakup point.

Merck KGaA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck KGaA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with CanSino Biologics and Merck KGaA

The main advantage of trading using opposite CanSino Biologics and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CanSino Biologics 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 CanSino Biologics and Merck KGaA 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.

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 the Bonds Directory module to find actively traded corporate debentures issued by US companies.