Correlation Between Merck KGaA and Real Brands
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Real Brands 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 Real Brands 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 Real Brands, you can compare the effects of market volatilities on Merck KGaA and Real Brands 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 Real Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Real Brands.
Diversification Opportunities for Merck KGaA and Real Brands
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Real is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Real Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Brands 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 Real Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Brands has no effect on the direction of Merck KGaA i.e., Merck KGaA and Real Brands go up and down completely randomly.
Pair Corralation between Merck KGaA and Real Brands
Assuming the 90 days horizon Merck KGaA ADR is expected to generate 0.06 times more return on investment than Real Brands. However, Merck KGaA ADR is 17.3 times less risky than Real Brands. It trades about -0.19 of its potential returns per unit of risk. Real Brands is currently generating about -0.03 per unit of risk. If you would invest 3,480 in Merck KGaA ADR on August 25, 2024 and sell it today you would lose (527.00) from holding Merck KGaA ADR or give up 15.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.78% |
| Values | Daily Returns |
Merck KGaA ADR vs. Real Brands
Performance |
| Timeline |
| Merck KGaA ADR |
| Real Brands |
Merck KGaA and Real Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Real Brands
The main advantage of trading using opposite Merck KGaA and Real Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Real Brands 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 Real Brands will offset losses from the drop in Real Brands' 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 |
| Real Brands vs. American Premium Water | Real Brands vs. Puration | Real Brands vs. Kona Gold Solutions | Real Brands vs. Leafbuyer Technologies |
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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