Correlation Between Merck KGaA and Entravision Communications

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

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

Diversification Opportunities for Merck KGaA and Entravision Communications

-0.81

Correlation Coefficient

Merck KGaA  Entravision Communications

Pay attention - limited upside

The 3 months correlation between Merck and Entravision is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications 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 Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of Merck KGaA i.e., Merck KGaA and Entravision Communications go up and down completely randomly.

Pair Corralation between Merck KGaA and Entravision Communications

Assuming the 90 days trading horizon Merck KGaA is expected to generate 24.52 times less return on investment than Entravision Communications. But when comparing it to its historical volatility, Merck KGaA is 4.22 times less risky than Entravision Communications. It trades about 0.01 of its potential returns per unit of risk. Entravision Communications is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  219.00  in Entravision Communications on October 6, 2024 and sell it today you would earn a total of  5.00  from holding Entravision Communications or generate 2.28% return on investment over 90 days.

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

Merck KGaA  vs.  Entravision Communications

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 latest fragile performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Entravision Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Entravision Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck KGaA and Entravision Communications

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

The idea behind Merck KGaA and Entravision Communications 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.