Correlation Between Merck KGaA and Maple Leaf
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Maple Leaf 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 Maple Leaf 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 Maple Leaf Green, you can compare the effects of market volatilities on Merck KGaA and Maple Leaf 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 Maple Leaf. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Maple Leaf.
Diversification Opportunities for Merck KGaA and Maple Leaf
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and Maple is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Maple Leaf Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maple Leaf Green 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 Maple Leaf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maple Leaf Green has no effect on the direction of Merck KGaA i.e., Merck KGaA and Maple Leaf go up and down completely randomly.
Pair Corralation between Merck KGaA and Maple Leaf
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Maple Leaf. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 13.73 times less risky than Maple Leaf. The pink sheet trades about -0.39 of its potential returns per unit of risk. The Maple Leaf Green is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3.00 in Maple Leaf Green on August 25, 2024 and sell it today you would lose (0.03) from holding Maple Leaf Green or give up 1.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Maple Leaf Green
Performance |
| Timeline |
| Merck KGaA ADR |
| Maple Leaf Green |
Merck KGaA and Maple Leaf Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Maple Leaf
The main advantage of trading using opposite Merck KGaA and Maple Leaf positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Maple Leaf 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 Maple Leaf will offset losses from the drop in Maple Leaf's long position.| Merck KGaA vs. Green Cures Botanical | Merck KGaA vs. Galexxy Holdings | Merck KGaA vs. Indoor Harvest Corp | Merck KGaA vs. Speakeasy Cannabis Club |
| Maple Leaf vs. Rezolute | Maple Leaf vs. Tempest Therapeutics | Maple Leaf vs. Forte Biosciences | Maple Leaf vs. Dyadic International |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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