Correlation Between Xtrackers LevDAX and Merck

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

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

Diversification Opportunities for Xtrackers LevDAX and Merck

-0.37

Correlation Coefficient

Xtrackers LevDAX  Merck

Very good diversification

The 3 months correlation between Xtrackers and Merck is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers LevDAX and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Xtrackers LevDAX 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 Xtrackers LevDAX 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 Xtrackers LevDAX i.e., Xtrackers LevDAX and Merck go up and down completely randomly.

Pair Corralation between Xtrackers LevDAX and Merck

Assuming the 90 days trading horizon Xtrackers LevDAX is expected to generate 0.92 times more return on investment than Merck. However, Xtrackers LevDAX is 1.09 times less risky than Merck. It trades about 0.11 of its potential returns per unit of risk. Merck Company is currently generating about -0.01 per unit of risk. If you would invest  13,758  in Xtrackers LevDAX on September 14, 2024 and sell it today you would earn a total of  7,332  from holding Xtrackers LevDAX or generate 53.29% return on investment over 90 days.

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

Xtrackers LevDAX  vs.  Merck Company

Xtrackers LevDAX

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers LevDAX are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Xtrackers LevDAX reported solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Xtrackers LevDAX and Merck

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

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .