Correlation Between Merck KGaA and Nippon Shinyaku
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Nippon Shinyaku 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 Nippon Shinyaku 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 Nippon Shinyaku Co, you can compare the effects of market volatilities on Merck KGaA and Nippon Shinyaku 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 Nippon Shinyaku. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Nippon Shinyaku.
Diversification Opportunities for Merck KGaA and Nippon Shinyaku
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Nippon is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Nippon Shinyaku Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Shinyaku 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 Nippon Shinyaku. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Shinyaku has no effect on the direction of Merck KGaA i.e., Merck KGaA and Nippon Shinyaku go up and down completely randomly.
Pair Corralation between Merck KGaA and Nippon Shinyaku
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Nippon Shinyaku. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 1.1 times less risky than Nippon Shinyaku. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Nippon Shinyaku Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 489.00 in Nippon Shinyaku Co on August 29, 2024 and sell it today you would earn a total of 186.00 from holding Nippon Shinyaku Co or generate 38.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Merck KGaA ADR vs. Nippon Shinyaku Co
Performance |
| Timeline |
| Merck KGaA ADR |
| Nippon Shinyaku |
Merck KGaA and Nippon Shinyaku Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Nippon Shinyaku
The main advantage of trading using opposite Merck KGaA and Nippon Shinyaku positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Nippon Shinyaku 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 Nippon Shinyaku will offset losses from the drop in Nippon Shinyaku's 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 |
| Nippon Shinyaku vs. Genomma Lab Internacional | Nippon Shinyaku vs. City View Green | Nippon Shinyaku vs. Procyon | Nippon Shinyaku vs. West Island Brands |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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