Correlation Between Maple Leaf and Merck KGaA
Can any of the company-specific risk be diversified away by investing in both Maple Leaf 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 Maple Leaf and Merck KGaA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Maple Leaf Green and Merck KGaA ADR, you can compare the effects of market volatilities on Maple Leaf 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 Maple Leaf with a short position of Merck KGaA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Maple Leaf and Merck KGaA.
Diversification Opportunities for Maple Leaf and Merck KGaA
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Maple and Merck is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Maple Leaf Green 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 Maple Leaf 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 Maple Leaf Green 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 Maple Leaf i.e., Maple Leaf and Merck KGaA go up and down completely randomly.
Pair Corralation between Maple Leaf and Merck KGaA
Assuming the 90 days horizon Maple Leaf Green is expected to generate 13.73 times more return on investment than Merck KGaA. However, Maple Leaf is 13.73 times more volatile than Merck KGaA ADR. It trades about 0.1 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.39 per unit of risk. If you would invest 3.00 in Maple Leaf Green on August 25, 2024 and sell it today you would lose (0.03) from holding Maple Leaf Green or give up 1.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Maple Leaf Green vs. Merck KGaA ADR
Performance |
| Timeline |
| Maple Leaf Green |
| Merck KGaA ADR |
Maple Leaf and Merck KGaA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Maple Leaf and Merck KGaA
The main advantage of trading using opposite Maple Leaf and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Maple Leaf 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.| Maple Leaf vs. Rezolute | Maple Leaf vs. Tempest Therapeutics | Maple Leaf vs. Forte Biosciences | Maple Leaf vs. Dyadic International |
| Merck KGaA vs. Green Cures Botanical | Merck KGaA vs. Galexxy Holdings | Merck KGaA vs. Indoor Harvest Corp | Merck KGaA vs. Speakeasy Cannabis Club |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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