Correlation Between Merck KGaA and Greater Cannabis
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Greater Cannabis 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 Greater Cannabis 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 Greater Cannabis, you can compare the effects of market volatilities on Merck KGaA and Greater Cannabis 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 Greater Cannabis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Greater Cannabis.
Diversification Opportunities for Merck KGaA and Greater Cannabis
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Greater is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Greater Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greater Cannabis 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 Greater Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greater Cannabis has no effect on the direction of Merck KGaA i.e., Merck KGaA and Greater Cannabis go up and down completely randomly.
Pair Corralation between Merck KGaA and Greater Cannabis
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Greater Cannabis. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 9.19 times less risky than Greater Cannabis. The pink sheet trades about -0.36 of its potential returns per unit of risk. The Greater Cannabis is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 0.05 in Greater Cannabis on August 28, 2024 and sell it today you would lose (0.01) from holding Greater Cannabis or give up 20.0% 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. Greater Cannabis
Performance |
| Timeline |
| Merck KGaA ADR |
| Greater Cannabis |
Merck KGaA and Greater Cannabis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Greater Cannabis
The main advantage of trading using opposite Merck KGaA and Greater Cannabis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Greater Cannabis 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 Greater Cannabis will offset losses from the drop in Greater Cannabis' 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 |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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