Correlation Between Merck KGaA and COPLAND ROAD

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

By analyzing existing cross correlation between Merck KGaA and COPLAND ROAD CAPITAL, you can compare the effects of market volatilities on Merck KGaA and COPLAND ROAD 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 COPLAND ROAD. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and COPLAND ROAD.

Diversification Opportunities for Merck KGaA and COPLAND ROAD

-0.3

Correlation Coefficient

Merck KGaA  COPLAND ROAD

Very good diversification

The 3 months correlation between Merck and COPLAND is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and COPLAND ROAD CAPITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COPLAND ROAD CAPITAL 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 are associated (or correlated) with COPLAND ROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COPLAND ROAD CAPITAL has no effect on the direction of Merck KGaA i.e., Merck KGaA and COPLAND ROAD go up and down completely randomly.

Pair Corralation between Merck KGaA and COPLAND ROAD

Assuming the 90 days trading horizon Merck KGaA is expected to under-perform the COPLAND ROAD. But the stock apears to be less risky and, when comparing its historical volatility, Merck KGaA is 2.36 times less risky than COPLAND ROAD. The stock trades about -0.07 of its potential returns per unit of risk. The COPLAND ROAD CAPITAL is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,840  in COPLAND ROAD CAPITAL on December 30, 2024 and sell it today you would earn a total of  1,330  from holding COPLAND ROAD CAPITAL or generate 34.64% return on investment over 90 days.

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

Merck KGaA  vs.  COPLAND ROAD CAPITAL

Merck KGaA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck KGaA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, Merck KGaA is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

COPLAND ROAD CAPITAL

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COPLAND ROAD CAPITAL are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, COPLAND ROAD reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck KGaA and COPLAND ROAD

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

The idea behind Merck KGaA and COPLAND ROAD CAPITAL 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.