Correlation Between Merck KGaA and IAnthus Capital

Can any of the company-specific risk be diversified away by investing in both Merck KGaA and IAnthus Capital 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 IAnthus Capital 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 iAnthus Capital Holdings, you can compare the effects of market volatilities on Merck KGaA and IAnthus Capital 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 IAnthus Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and IAnthus Capital.

Diversification Opportunities for Merck KGaA and IAnthus Capital

0.17

Correlation Coefficient

Merck KGaA  IAnthus Capital

Average diversification

The 3 months correlation between Merck and IAnthus is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and iAnthus Capital Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iAnthus Capital Holdings 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 IAnthus Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iAnthus Capital Holdings has no effect on the direction of Merck KGaA i.e., Merck KGaA and IAnthus Capital go up and down completely randomly.

Pair Corralation between Merck KGaA and IAnthus Capital

Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the IAnthus Capital. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 8.69 times less risky than IAnthus Capital. The pink sheet trades about 0.0 of its potential returns per unit of risk. The iAnthus Capital Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.40  in iAnthus Capital Holdings on December 29, 2024 and sell it today you would earn a total of  0.17  from holding iAnthus Capital Holdings or generate 42.5% return on investment over 90 days.

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

Merck KGaA ADR  vs.  iAnthus Capital Holdings

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.

iAnthus Capital Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iAnthus Capital Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, IAnthus Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck KGaA and IAnthus Capital

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

The idea behind Merck KGaA ADR and iAnthus Capital Holdings 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 Transaction History module to view history of all your transactions and understand their impact on performance.