Correlation Between Recruit Holdings and Merck KGaA

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

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

Diversification Opportunities for Recruit Holdings and Merck KGaA

-0.43

Correlation Coefficient

Recruit Holdings  Merck KGaA

Very good diversification

The 3 months correlation between Recruit and Merck is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Recruit Holdings Co and Merck KGaA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA ADR and Recruit Holdings 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 Recruit Holdings Co are associated (or correlated) with Merck KGaA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck KGaA ADR has no effect on the direction of Recruit Holdings i.e., Recruit Holdings and Merck KGaA go up and down completely randomly.

Pair Corralation between Recruit Holdings and Merck KGaA

Assuming the 90 days horizon Recruit Holdings Co is expected to generate 1.46 times more return on investment than Merck KGaA. However, Recruit Holdings is 1.46 times more volatile than Merck KGaA ADR. It trades about 0.14 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.22 per unit of risk. If you would invest  1,165  in Recruit Holdings Co on September 4, 2024 and sell it today you would earn a total of  260.00  from holding Recruit Holdings Co or generate 22.32% return on investment over 90 days.

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

Recruit Holdings Co  vs.  Merck KGaA ADR

Recruit Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Recruit Holdings Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Recruit Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Merck KGaA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck KGaA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Recruit Holdings and Merck KGaA

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

The idea behind Recruit Holdings Co and Merck KGaA 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.