Correlation Between Rimrock Gold and Merck KGaA

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

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

Diversification Opportunities for Rimrock Gold and Merck KGaA

-0.23

Correlation Coefficient

Rimrock Gold  Merck KGaA

Very good diversification

The 3 months correlation between Rimrock and Merck is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Rimrock Gold Corp 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 Rimrock Gold 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 Rimrock Gold Corp 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 Rimrock Gold i.e., Rimrock Gold and Merck KGaA go up and down completely randomly.

Pair Corralation between Rimrock Gold and Merck KGaA

Given the investment horizon of 90 days Rimrock Gold Corp is expected to generate 8.1 times more return on investment than Merck KGaA. However, Rimrock Gold is 8.1 times more volatile than Merck KGaA ADR. It trades about 0.06 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about 0.0 per unit of risk. If you would invest  0.03  in Rimrock Gold Corp on December 29, 2024 and sell it today you would earn a total of  0.00  from holding Rimrock Gold Corp or generate 0.0% return on investment over 90 days.

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

Rimrock Gold Corp  vs.  Merck KGaA ADR

Rimrock Gold Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rimrock Gold Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Rimrock Gold disclosed solid returns over the last few months and may actually be approaching a breakup point.

Merck KGaA ADR

Risk-Adjusted Performance

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 fairly strong technical and fundamental indicators, Merck KGaA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rimrock Gold and Merck KGaA

The main advantage of trading using opposite Rimrock Gold and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rimrock Gold 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 Rimrock Gold Corp 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.

Check out your portfolio center.

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 Transaction History module to view history of all your transactions and understand their impact on performance.