Correlation Between Merck KGaA and Kaya Holdings

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

Diversification Opportunities for Merck KGaA and Kaya Holdings

0.82

Correlation Coefficient

Merck KGaA  Kaya Holdings

Very poor diversification

The 3 months correlation between Merck and Kaya is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Kaya Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaya 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 Kaya Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaya Holdings has no effect on the direction of Merck KGaA i.e., Merck KGaA and Kaya Holdings go up and down completely randomly.

Pair Corralation between Merck KGaA and Kaya Holdings

Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Kaya Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 6.09 times less risky than Kaya Holdings. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Kaya Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3.10  in Kaya Holdings on October 6, 2024 and sell it today you would lose (0.13) from holding Kaya Holdings or give up 4.19% of portfolio value over 90 days.

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

Merck KGaA ADR  vs.  Kaya Holdings

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

Kaya Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kaya Holdings 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 basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Merck KGaA and Kaya Holdings

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

The idea behind Merck KGaA ADR and Kaya 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.