Correlation Between Merck KGaA and Essilor International
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Essilor International 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 Essilor International 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 Essilor International SA, you can compare the effects of market volatilities on Merck KGaA and Essilor International 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 Essilor International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Essilor International.
Diversification Opportunities for Merck KGaA and Essilor International
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Essilor is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Essilor International SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essilor International 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 Essilor International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essilor International has no effect on the direction of Merck KGaA i.e., Merck KGaA and Essilor International go up and down completely randomly.
Pair Corralation between Merck KGaA and Essilor International
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Essilor International. In addition to that, Merck KGaA is 1.28 times more volatile than Essilor International SA. It trades about -0.28 of its total potential returns per unit of risk. Essilor International SA is currently generating about 0.18 per unit of volatility. If you would invest 11,612 in Essilor International SA on August 31, 2024 and sell it today you would earn a total of 546.00 from holding Essilor International SA or generate 4.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Essilor International SA
Performance |
| Timeline |
| Merck KGaA ADR |
| Essilor International |
Merck KGaA and Essilor International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Essilor International
The main advantage of trading using opposite Merck KGaA and Essilor International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Essilor International 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 Essilor International will offset losses from the drop in Essilor International'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 |
| Essilor International vs. Sysmex Corp | Essilor International vs. Coloplast AS | Essilor International vs. EssilorLuxottica Socit anonyme | Essilor International vs. Coloplast A |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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