Correlation Between Merck KGaA and MGC Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and MGC Pharmaceuticals 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 MGC Pharmaceuticals 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 MGC Pharmaceuticals, you can compare the effects of market volatilities on Merck KGaA and MGC Pharmaceuticals 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 MGC Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and MGC Pharmaceuticals.
Diversification Opportunities for Merck KGaA and MGC Pharmaceuticals
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and MGC is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and MGC Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGC Pharmaceuticals 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 MGC Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGC Pharmaceuticals has no effect on the direction of Merck KGaA i.e., Merck KGaA and MGC Pharmaceuticals go up and down completely randomly.
Pair Corralation between Merck KGaA and MGC Pharmaceuticals
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the MGC Pharmaceuticals. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 28.96 times less risky than MGC Pharmaceuticals. The pink sheet trades about -0.01 of its potential returns per unit of risk. The MGC Pharmaceuticals is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 0.78 in MGC Pharmaceuticals on August 30, 2024 and sell it today you would earn a total of 20.22 from holding MGC Pharmaceuticals or generate 2592.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 80.2% |
| Values | Daily Returns |
Merck KGaA ADR vs. MGC Pharmaceuticals
Performance |
| Timeline |
| Merck KGaA ADR |
| MGC Pharmaceuticals |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Merck KGaA and MGC Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and MGC Pharmaceuticals
The main advantage of trading using opposite Merck KGaA and MGC Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, MGC Pharmaceuticals 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 MGC Pharmaceuticals will offset losses from the drop in MGC Pharmaceuticals' 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 |
| MGC Pharmaceuticals vs. Target Group | MGC Pharmaceuticals vs. Aequus Pharmaceuticals | MGC Pharmaceuticals vs. Filament Health Corp | MGC Pharmaceuticals vs. Sky Century Investment |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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