Correlation Between Merck KGaA and SIMCERE PHARMAC

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

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

Diversification Opportunities for Merck KGaA and SIMCERE PHARMAC

-0.44

Correlation Coefficient

Merck KGaA  SIMCERE PHARMAC

Very good diversification

The 3 months correlation between Merck and SIMCERE is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and SIMCERE PHARMAC GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMCERE PHARMAC GRP 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 SIMCERE PHARMAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMCERE PHARMAC GRP has no effect on the direction of Merck KGaA i.e., Merck KGaA and SIMCERE PHARMAC go up and down completely randomly.

Pair Corralation between Merck KGaA and SIMCERE PHARMAC

If you would invest  14,457  in Merck KGaA on October 14, 2024 and sell it today you would lose (202.00) from holding Merck KGaA or give up 1.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	0.0%
Values	Daily Returns

Merck KGaA  vs.  SIMCERE PHARMAC GRP

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.

SIMCERE PHARMAC GRP

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days SIMCERE PHARMAC GRP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, SIMCERE PHARMAC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck KGaA and SIMCERE PHARMAC

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

The idea behind Merck KGaA and SIMCERE PHARMAC GRP 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.