Correlation Between Merck KGaA and Cansortium
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Cansortium 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 Cansortium 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 Cansortium, you can compare the effects of market volatilities on Merck KGaA and Cansortium 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 Cansortium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Cansortium.
Diversification Opportunities for Merck KGaA and Cansortium
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Cansortium is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Cansortium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cansortium 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 Cansortium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cansortium has no effect on the direction of Merck KGaA i.e., Merck KGaA and Cansortium go up and down completely randomly.
Pair Corralation between Merck KGaA and Cansortium
Assuming the 90 days horizon Merck KGaA ADR is expected to generate 0.22 times more return on investment than Cansortium. However, Merck KGaA ADR is 4.46 times less risky than Cansortium. It trades about -0.09 of its potential returns per unit of risk. Cansortium is currently generating about -0.03 per unit of risk. If you would invest 3,630 in Merck KGaA ADR on August 25, 2024 and sell it today you would lose (677.00) from holding Merck KGaA ADR or give up 18.65% 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. Cansortium
Performance |
| Timeline |
| Merck KGaA ADR |
| Cansortium |
Merck KGaA and Cansortium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Cansortium
The main advantage of trading using opposite Merck KGaA and Cansortium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Cansortium 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 Cansortium will offset losses from the drop in Cansortium'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 |
| Cansortium vs. Green Cures Botanical | Cansortium vs. Galexxy Holdings | Cansortium vs. Indoor Harvest Corp | Cansortium 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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