Correlation Between Merck KGaA and ANI Pharmaceuticals

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

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

Diversification Opportunities for Merck KGaA and ANI Pharmaceuticals

-0.03

Correlation Coefficient

Merck KGaA  ANI Pharmaceuticals

Good diversification

The 3 months correlation between Merck and ANI is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and ANI Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ANI Pharmaceuticals 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 ANI Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ANI Pharmaceuticals has no effect on the direction of Merck KGaA i.e., Merck KGaA and ANI Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merck KGaA and ANI Pharmaceuticals

Assuming the 90 days trading horizon Merck KGaA is expected to under-perform the ANI Pharmaceuticals. But the stock apears to be less risky and, when comparing its historical volatility, Merck KGaA is 1.57 times less risky than ANI Pharmaceuticals. The stock trades about -0.02 of its potential returns per unit of risk. The ANI Pharmaceuticals is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,040  in ANI Pharmaceuticals on September 26, 2024 and sell it today you would earn a total of  1,060  from holding ANI Pharmaceuticals or generate 26.24% 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.  ANI Pharmaceuticals

Merck KGaA

Risk-Adjusted Performance

0 of 100

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 fragile performance in the last few months, the Stock's forward-looking signals remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

ANI Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merck KGaA and ANI Pharmaceuticals

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

The idea behind Merck KGaA and ANI Pharmaceuticals 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.