Correlation Between Merck KGaA and Mc Endvrs

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

Diversification Opportunities for Merck KGaA and Mc Endvrs

-0.31

Correlation Coefficient

Merck KGaA  Mc Endvrs

Very good diversification

The 3 months correlation between Merck and MSMY is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Mc Endvrs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mc Endvrs 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 Mc Endvrs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mc Endvrs has no effect on the direction of Merck KGaA i.e., Merck KGaA and Mc Endvrs go up and down completely randomly.

Pair Corralation between Merck KGaA and Mc Endvrs

Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Mc Endvrs. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 6.46 times less risky than Mc Endvrs. The pink sheet trades about -0.22 of its potential returns per unit of risk. The Mc Endvrs is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.06  in Mc Endvrs on September 3, 2024 and sell it today you would earn a total of  0.01  from holding Mc Endvrs or generate 16.67% return on investment over 90 days.

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

Merck KGaA ADR  vs.  Mc Endvrs

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 January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Mc Endvrs

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mc Endvrs are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Mc Endvrs showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck KGaA and Mc Endvrs

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

The idea behind Merck KGaA ADR and Mc Endvrs 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.