Correlation Between Merck KGaA and Hoya Corp
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Hoya 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 Hoya 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 Hoya Corp, you can compare the effects of market volatilities on Merck KGaA and Hoya 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 Hoya Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Hoya Corp.
Diversification Opportunities for Merck KGaA and Hoya Corp
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Merck and Hoya is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Hoya Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hoya 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 Hoya Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hoya Corp has no effect on the direction of Merck KGaA i.e., Merck KGaA and Hoya Corp go up and down completely randomly.
Pair Corralation between Merck KGaA and Hoya Corp
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Hoya Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 1.3 times less risky than Hoya Corp. The pink sheet trades about -0.34 of its potential returns per unit of risk. The Hoya Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 13,143 in Hoya Corp on August 27, 2024 and sell it today you would lose (285.00) from holding Hoya Corp or give up 2.17% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Hoya Corp
Performance |
| Timeline |
| Merck KGaA ADR |
| Hoya Corp |
Merck KGaA and Hoya Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Hoya Corp
The main advantage of trading using opposite Merck KGaA and Hoya Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Hoya 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 Hoya Corp will offset losses from the drop in Hoya Corp's long position.The idea behind Merck KGaA ADR and Hoya Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Hoya Corp vs. Sysmex Corp | Hoya Corp vs. Straumann Holding AG | Hoya Corp vs. Coloplast AS | Hoya Corp vs. Essilor International SA |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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