Correlation Between Merck KGaA and BC Bud

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

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

Diversification Opportunities for Merck KGaA and BC Bud

-0.7

Correlation Coefficient

Merck KGaA  BC Bud

Excellent diversification

The 3 months correlation between Merck and BCBCF is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and The BC Bud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BC Bud and Merck KGaA 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 Merck KGaA ADR are associated (or correlated) with BC Bud. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BC Bud has no effect on the direction of Merck KGaA i.e., Merck KGaA and BC Bud go up and down completely randomly.

Pair Corralation between Merck KGaA and BC Bud

Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the BC Bud. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 34.18 times less risky than BC Bud. The pink sheet trades about -0.22 of its potential returns per unit of risk. The The BC Bud is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  0.88  in The BC Bud on September 3, 2024 and sell it today you would earn a total of  3.67  from holding The BC Bud or generate 417.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Merck KGaA ADR  vs.  The BC Bud

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 uncertain 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.

BC Bud

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Merck KGaA and BC Bud

The main advantage of trading using opposite Merck KGaA and BC Bud positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, BC Bud 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 BC Bud will offset losses from the drop in BC Bud's long position.

The idea behind Merck KGaA ADR and The BC Bud 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.