Correlation Between Evotec SE and Merck KGaA

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

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

Diversification Opportunities for Evotec SE and Merck KGaA

-0.85

Correlation Coefficient

Evotec SE  Merck KGaA

Pay attention - limited upside

The 3 months correlation between Evotec and Merck is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Evotec SE and Merck KGaA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA and Evotec SE 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 Evotec SE 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 Evotec SE i.e., Evotec SE and Merck KGaA go up and down completely randomly.

Pair Corralation between Evotec SE and Merck KGaA

Assuming the 90 days trading horizon Evotec SE is expected to generate 3.91 times more return on investment than Merck KGaA. However, Evotec SE is 3.91 times more volatile than Merck KGaA. It trades about 0.16 of its potential returns per unit of risk. Merck KGaA is currently generating about -0.09 per unit of risk. If you would invest  527.00  in Evotec SE on October 15, 2024 and sell it today you would earn a total of  315.00  from holding Evotec SE or generate 59.77% return on investment over 90 days.

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

Evotec SE  vs.  Merck KGaA

Evotec SE

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Evotec SE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Evotec SE 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 Evotec SE and Merck KGaA

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

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.