Correlation Between Elixinol Global and Merck KGaA

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

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

Diversification Opportunities for Elixinol Global and Merck KGaA

0.28

Correlation Coefficient

Elixinol Global  Merck KGaA

Modest diversification

The 3 months correlation between Elixinol and Merck is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Elixinol Global 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 Elixinol Global 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 Elixinol Global 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 Elixinol Global i.e., Elixinol Global and Merck KGaA go up and down completely randomly.

Pair Corralation between Elixinol Global and Merck KGaA

Assuming the 90 days horizon Elixinol Global is expected to generate 25.23 times more return on investment than Merck KGaA. However, Elixinol Global is 25.23 times more volatile than Merck KGaA ADR. It trades about 0.14 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.06 per unit of risk. If you would invest  1.70  in Elixinol Global on December 27, 2024 and sell it today you would earn a total of  0.23  from holding Elixinol Global or generate 13.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Elixinol Global  vs.  Merck KGaA ADR

Elixinol Global

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Elixinol Global are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Elixinol Global reported solid returns over the last few months and may actually be approaching a breakup point.

Merck KGaA ADR

Risk-Adjusted Performance

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 fairly strong technical and fundamental indicators, Merck KGaA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Elixinol Global and Merck KGaA

The main advantage of trading using opposite Elixinol Global and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Elixinol Global 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 Elixinol Global 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..