Correlation Between Merck KGaA and Haleon PLC

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

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

Diversification Opportunities for Merck KGaA and Haleon PLC

-0.04

Correlation Coefficient

Merck KGaA  Haleon PLC

Good diversification

The 3 months correlation between Merck and Haleon is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and Haleon PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Haleon PLC 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 Haleon PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Haleon PLC has no effect on the direction of Merck KGaA i.e., Merck KGaA and Haleon PLC go up and down completely randomly.

Pair Corralation between Merck KGaA and Haleon PLC

Assuming the 90 days trading horizon Merck KGaA is expected to generate 18.69 times less return on investment than Haleon PLC. But when comparing it to its historical volatility, Merck KGaA is 1.12 times less risky than Haleon PLC. It trades about 0.0 of its potential returns per unit of risk. Haleon PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  720.00  in Haleon PLC on October 14, 2024 and sell it today you would earn a total of  175.00  from holding Haleon PLC or generate 24.31% 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.  Haleon PLC

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.

Haleon PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Haleon PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Haleon PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck KGaA and Haleon PLC

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

The idea behind Merck KGaA and Haleon PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.