Correlation Between Merck KGaA and Link Reservations

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

Diversification Opportunities for Merck KGaA and Link Reservations

0.29

Correlation Coefficient

Merck KGaA  Link Reservations

Modest diversification

The 3 months correlation between Merck and Link is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Link Reservations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Link Reservations 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 Link Reservations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Link Reservations has no effect on the direction of Merck KGaA i.e., Merck KGaA and Link Reservations go up and down completely randomly.

Pair Corralation between Merck KGaA and Link Reservations

If you would invest  0.10  in Link Reservations on December 27, 2024 and sell it today you would earn a total of  0.00  from holding Link Reservations or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Merck KGaA ADR  vs.  Link Reservations

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.

Link Reservations

Risk-Adjusted Performance

Very Weak

Over the last 90 days Link Reservations has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Link Reservations is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merck KGaA and Link Reservations

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

The idea behind Merck KGaA ADR and Link Reservations 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.