Correlation Between Merck KGaA and Rubicon Organics
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Rubicon Organics 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 Rubicon Organics 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 Rubicon Organics, you can compare the effects of market volatilities on Merck KGaA and Rubicon Organics 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 Rubicon Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Rubicon Organics.
Diversification Opportunities for Merck KGaA and Rubicon Organics
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and Rubicon is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Rubicon Organics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rubicon Organics 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 Rubicon Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rubicon Organics has no effect on the direction of Merck KGaA i.e., Merck KGaA and Rubicon Organics go up and down completely randomly.
Pair Corralation between Merck KGaA and Rubicon Organics
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Rubicon Organics. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 3.28 times less risky than Rubicon Organics. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Rubicon Organics is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 41.00 in Rubicon Organics on August 26, 2024 and sell it today you would lose (17.00) from holding Rubicon Organics or give up 41.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA ADR vs. Rubicon Organics
Performance |
| Timeline |
| Merck KGaA ADR |
| Rubicon Organics |
Merck KGaA and Rubicon Organics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Rubicon Organics
The main advantage of trading using opposite Merck KGaA and Rubicon Organics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Rubicon Organics 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 Rubicon Organics will offset losses from the drop in Rubicon Organics' long position.| Merck KGaA vs. Indoor Harvest Corp | Merck KGaA vs. Speakeasy Cannabis Club | Merck KGaA vs. Benchmark Botanics | Merck KGaA vs. Link Reservations |
| Rubicon Organics vs. Indoor Harvest Corp | Rubicon Organics vs. Speakeasy Cannabis Club | Rubicon Organics vs. Benchmark Botanics | Rubicon Organics vs. Link Reservations |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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