Correlation Between Merck and Guangzhou Baiyunshan

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

By analyzing existing cross correlation between Merck Company and Guangzhou Baiyunshan Pharmaceutical, you can compare the effects of market volatilities on Merck and Guangzhou Baiyunshan 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 with a short position of Guangzhou Baiyunshan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Guangzhou Baiyunshan.

Diversification Opportunities for Merck and Guangzhou Baiyunshan

-0.38

Correlation Coefficient

Merck  Guangzhou Baiyunshan

Very good diversification

The 3 months correlation between Merck and Guangzhou is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Guangzhou Baiyunshan Pharmaceu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Baiyunshan and Merck 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 Company are associated (or correlated) with Guangzhou Baiyunshan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Baiyunshan has no effect on the direction of Merck i.e., Merck and Guangzhou Baiyunshan go up and down completely randomly.

Pair Corralation between Merck and Guangzhou Baiyunshan

Assuming the 90 days horizon Merck Company is expected to under-perform the Guangzhou Baiyunshan. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 1.22 times less risky than Guangzhou Baiyunshan. The stock trades about -0.24 of its potential returns per unit of risk. The Guangzhou Baiyunshan Pharmaceutical is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  210.00  in Guangzhou Baiyunshan Pharmaceutical on September 24, 2024 and sell it today you would earn a total of  4.00  from holding Guangzhou Baiyunshan Pharmaceutical or generate 1.9% return on investment over 90 days.

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

Merck Company  vs.  Guangzhou Baiyunshan Pharmaceu

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Guangzhou Baiyunshan

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Baiyunshan Pharmaceutical are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Guangzhou Baiyunshan reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Guangzhou Baiyunshan

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

The idea behind Merck Company and Guangzhou Baiyunshan Pharmaceutical 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.