Correlation Between Fresenius and Merck KGaA

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

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

Diversification Opportunities for Fresenius and Merck KGaA

0.83

Correlation Coefficient

Fresenius  Merck KGaA

Very poor diversification

The 3 months correlation between Fresenius and Merck is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Fresenius SE Co 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 Fresenius 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 Fresenius SE Co 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 Fresenius i.e., Fresenius and Merck KGaA go up and down completely randomly.

Pair Corralation between Fresenius and Merck KGaA

Assuming the 90 days horizon Fresenius SE Co is expected to generate 0.69 times more return on investment than Merck KGaA. However, Fresenius SE Co is 1.46 times less risky than Merck KGaA. It trades about -0.06 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.18 per unit of risk. If you would invest  938.00  in Fresenius SE Co on September 12, 2024 and sell it today you would lose (47.00) from holding Fresenius SE Co or give up 5.01% of portfolio value over 90 days.

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

Fresenius SE Co  vs.  Merck KGaA ADR

Fresenius SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fresenius SE Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Fresenius is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Merck KGaA ADR

Risk-Adjusted Performance

0 of 100

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Fresenius and Merck KGaA

The main advantage of trading using opposite Fresenius and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fresenius 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 Fresenius SE Co 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.