Correlation Between Merck and Evotec SE

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

By analyzing existing cross correlation between Merck Company and Evotec SE ADR, you can compare the effects of market volatilities on Merck and Evotec SE 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 with a short position of Evotec SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Evotec SE.

Diversification Opportunities for Merck and Evotec SE

0.08

Correlation Coefficient

Merck  Evotec SE

Significant diversification

The 3 months correlation between Merck and Evotec is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Evotec SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evotec SE ADR and Merck 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 Company are associated (or correlated) with Evotec SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evotec SE ADR has no effect on the direction of Merck i.e., Merck and Evotec SE go up and down completely randomly.

Pair Corralation between Merck and Evotec SE

Considering the 90-day investment horizon Merck Company is expected to generate 0.31 times more return on investment than Evotec SE. However, Merck Company is 3.23 times less risky than Evotec SE. It trades about -0.01 of its potential returns per unit of risk. Evotec SE ADR is currently generating about -0.03 per unit of risk. If you would invest  9,894  in Merck Company on December 3, 2024 and sell it today you would lose (579.00) from holding Merck Company or give up 5.85% of portfolio value over 90 days.

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

Merck Company  vs.  Evotec SE ADR

Merck Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Evotec SE ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Evotec SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Evotec SE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Merck and Evotec SE

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

The idea behind Merck Company and Evotec SE ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.