Correlation Between Talanx AG and Merck

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

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

Diversification Opportunities for Talanx AG and Merck

-0.6

Correlation Coefficient

Talanx AG  Merck

Excellent diversification

The 3 months correlation between Talanx and Merck is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Talanx AG and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Talanx AG 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 Talanx AG are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Talanx AG i.e., Talanx AG and Merck go up and down completely randomly.

Pair Corralation between Talanx AG and Merck

Assuming the 90 days horizon Talanx AG is expected to generate 1.16 times more return on investment than Merck. However, Talanx AG is 1.16 times more volatile than Merck Company. It trades about 0.27 of its potential returns per unit of risk. Merck Company is currently generating about -0.16 per unit of risk. If you would invest  7,300  in Talanx AG on October 9, 2024 and sell it today you would earn a total of  995.00  from holding Talanx AG or generate 13.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	97.37%
Values	Daily Returns

Talanx AG  vs.  Merck Company

Talanx AG

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Talanx AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Merck Company

Risk-Adjusted Performance

0 of 100

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 fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Talanx AG and Merck

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

The idea behind Talanx AG and Merck Company 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.