Correlation Between Merck KGaA and Avicanna
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Avicanna 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 Avicanna 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 Avicanna, you can compare the effects of market volatilities on Merck KGaA and Avicanna 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 Avicanna. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Avicanna.
Diversification Opportunities for Merck KGaA and Avicanna
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Avicanna is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Avicanna in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avicanna 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 Avicanna. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avicanna has no effect on the direction of Merck KGaA i.e., Merck KGaA and Avicanna go up and down completely randomly.
Pair Corralation between Merck KGaA and Avicanna
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Avicanna. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 3.89 times less risky than Avicanna. The pink sheet trades about -0.27 of its potential returns per unit of risk. The Avicanna is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 21.00 in Avicanna on August 30, 2024 and sell it today you would earn a total of 0.00 from holding Avicanna or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Avicanna
Performance |
| Timeline |
| Merck KGaA ADR |
| Avicanna |
Merck KGaA and Avicanna Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Avicanna
The main advantage of trading using opposite Merck KGaA and Avicanna positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Avicanna 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 Avicanna will offset losses from the drop in Avicanna's long position.| Merck KGaA vs. Green Cures Botanical | Merck KGaA vs. Cann American Corp | Merck KGaA vs. Rimrock Gold Corp | Merck KGaA vs. Galexxy Holdings |
| Avicanna vs. Green Cures Botanical | Avicanna vs. Cann American Corp | Avicanna vs. Rimrock Gold Corp | Avicanna vs. Galexxy Holdings |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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