Correlation Between CSPC PHARMACEUTGR and Merck

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

By analyzing existing cross correlation between CSPC PHARMACEUTGR ADR4 and Merck Co, you can compare the effects of market volatilities on CSPC PHARMACEUTGR 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 CSPC PHARMACEUTGR with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSPC PHARMACEUTGR and Merck.

Diversification Opportunities for CSPC PHARMACEUTGR and Merck

-0.66

Correlation Coefficient

CSPC PHARMACEUTGR  Merck

Excellent diversification

The 3 months correlation between CSPC and Merck is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding CSPC PHARMACEUTGR ADR4 and Merck Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck and CSPC PHARMACEUTGR 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 CSPC PHARMACEUTGR ADR4 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 has no effect on the direction of CSPC PHARMACEUTGR i.e., CSPC PHARMACEUTGR and Merck go up and down completely randomly.

Pair Corralation between CSPC PHARMACEUTGR and Merck

Assuming the 90 days trading horizon CSPC PHARMACEUTGR ADR4 is expected to generate 1.49 times more return on investment than Merck. However, CSPC PHARMACEUTGR is 1.49 times more volatile than Merck Co. It trades about -0.03 of its potential returns per unit of risk. Merck Co is currently generating about -0.07 per unit of risk. If you would invest  220.00  in CSPC PHARMACEUTGR ADR4 on December 26, 2024 and sell it today you would lose (16.00) from holding CSPC PHARMACEUTGR ADR4 or give up 7.27% of portfolio value over 90 days.

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

CSPC PHARMACEUTGR ADR4  vs.  Merck Co

CSPC PHARMACEUTGR ADR4

Risk-Adjusted Performance

Very Weak

Over the last 90 days CSPC PHARMACEUTGR ADR4 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, CSPC PHARMACEUTGR is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Merck

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Co 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 CSPC PHARMACEUTGR and Merck

The main advantage of trading using opposite CSPC PHARMACEUTGR and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSPC PHARMACEUTGR 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 CSPC PHARMACEUTGR ADR4 and Merck Co 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.