Correlation Between Merck KGaA and Allied Corp
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Allied Corp 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 Merck KGaA and Allied Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck KGaA ADR and Allied Corp, you can compare the effects of market volatilities on Merck KGaA and Allied Corp 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 Merck KGaA with a short position of Allied Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Allied Corp.
Diversification Opportunities for Merck KGaA and Allied Corp
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Allied is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Allied Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Corp and Merck KGaA 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 Merck KGaA ADR are associated (or correlated) with Allied Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Corp has no effect on the direction of Merck KGaA i.e., Merck KGaA and Allied Corp go up and down completely randomly.
Pair Corralation between Merck KGaA and Allied Corp
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Allied Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 9.85 times less risky than Allied Corp. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Allied Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 21.00 in Allied Corp on October 23, 2024 and sell it today you would lose (17.52) from holding Allied Corp or give up 83.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Allied Corp
Performance |
| Timeline |
| Merck KGaA ADR |
| Allied Corp |
Merck KGaA and Allied Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Allied Corp
The main advantage of trading using opposite Merck KGaA and Allied Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Allied Corp 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 Allied Corp will offset losses from the drop in Allied Corp's long position.| Merck KGaA vs. Recruit Holdings Co | Merck KGaA vs. Fresenius SE Co | Merck KGaA vs. Straumann Holding AG | Merck KGaA vs. MERCK Kommanditgesellschaft auf |
| Allied Corp vs. The BC Bud | Allied Corp vs. Amexdrug | Allied Corp vs. Aion Therapeutic | Allied Corp vs. Pharmacielo |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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