Correlation Between Merck KGaA and Medipharm Labs
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Medipharm Labs 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 Medipharm Labs 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 Medipharm Labs Corp, you can compare the effects of market volatilities on Merck KGaA and Medipharm Labs 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 Medipharm Labs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Medipharm Labs.
Diversification Opportunities for Merck KGaA and Medipharm Labs
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Medipharm is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Medipharm Labs Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medipharm Labs 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 Medipharm Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medipharm Labs Corp has no effect on the direction of Merck KGaA i.e., Merck KGaA and Medipharm Labs go up and down completely randomly.
Pair Corralation between Merck KGaA and Medipharm Labs
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Medipharm Labs. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 2.51 times less risky than Medipharm Labs. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Medipharm Labs Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 6.00 in Medipharm Labs Corp on August 26, 2024 and sell it today you would lose (1.00) from holding Medipharm Labs Corp or give up 16.67% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Medipharm Labs Corp
Performance |
| Timeline |
| Merck KGaA ADR |
| Medipharm Labs Corp |
Merck KGaA and Medipharm Labs Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Medipharm Labs
The main advantage of trading using opposite Merck KGaA and Medipharm Labs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Medipharm Labs 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 Medipharm Labs will offset losses from the drop in Medipharm Labs' 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 |
| Medipharm Labs vs. Pharmacielo | Medipharm Labs vs. Blueberries Medical Corp | Medipharm Labs vs. Flora Growth Corp | Medipharm Labs vs. Stem 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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