Correlation Between Thai Beverage and Merck KGaA

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

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

Diversification Opportunities for Thai Beverage and Merck KGaA

-0.37

Correlation Coefficient

Thai Beverage  Merck KGaA

Very good diversification

The 3 months correlation between Thai and Merck is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Thai Beverage Public and Merck KGaA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA and Thai Beverage 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 Thai Beverage Public 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 has no effect on the direction of Thai Beverage i.e., Thai Beverage and Merck KGaA go up and down completely randomly.

Pair Corralation between Thai Beverage and Merck KGaA

Assuming the 90 days horizon Thai Beverage Public is expected to generate 2.49 times more return on investment than Merck KGaA. However, Thai Beverage is 2.49 times more volatile than Merck KGaA. It trades about 0.14 of its potential returns per unit of risk. Merck KGaA is currently generating about -0.17 per unit of risk. If you would invest  35.00  in Thai Beverage Public on October 8, 2024 and sell it today you would earn a total of  5.00  from holding Thai Beverage Public or generate 14.29% return on investment over 90 days.

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

Thai Beverage Public  vs.  Merck KGaA

Thai Beverage Public

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Thai Beverage Public are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Thai Beverage reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain 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.

Pair Trading with Thai Beverage and Merck KGaA

The main advantage of trading using opposite Thai Beverage and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Thai Beverage 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 Thai Beverage Public and Merck KGaA 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.