Correlation Between Merck KGaA and Tianan Pharmaceutical
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Tianan Pharmaceutical 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 Tianan Pharmaceutical 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 Tianan Pharmaceutical Co, you can compare the effects of market volatilities on Merck KGaA and Tianan Pharmaceutical 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 Tianan Pharmaceutical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Tianan Pharmaceutical.
Diversification Opportunities for Merck KGaA and Tianan Pharmaceutical
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merck and Tianan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Tianan Pharmaceutical Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tianan Pharmaceutical 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 Tianan Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tianan Pharmaceutical has no effect on the direction of Merck KGaA i.e., Merck KGaA and Tianan Pharmaceutical go up and down completely randomly.
Pair Corralation between Merck KGaA and Tianan Pharmaceutical
Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the Tianan Pharmaceutical. In addition to that, Merck KGaA is 6.0 times more volatile than Tianan Pharmaceutical Co. It trades about -0.21 of its total potential returns per unit of risk. Tianan Pharmaceutical Co is currently generating about -0.15 per unit of volatility. If you would invest 0.53 in Tianan Pharmaceutical Co on August 30, 2024 and sell it today you would lose (0.01) from holding Tianan Pharmaceutical Co or give up 1.89% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.73% |
| Values | Daily Returns |
Merck KGaA ADR vs. Tianan Pharmaceutical Co
Performance |
| Timeline |
| Merck KGaA ADR |
| Tianan Pharmaceutical |
Merck KGaA and Tianan Pharmaceutical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Tianan Pharmaceutical
The main advantage of trading using opposite Merck KGaA and Tianan Pharmaceutical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Tianan Pharmaceutical 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 Tianan Pharmaceutical will offset losses from the drop in Tianan Pharmaceutical's long position.| Merck KGaA vs. Green Cures Botanical | Merck KGaA vs. Cann American Corp | Merck KGaA vs. Rimrock Gold Corp | Merck KGaA vs. Galexxy Holdings |
| Tianan Pharmaceutical vs. The BC Bud | Tianan Pharmaceutical vs. Amexdrug | Tianan Pharmaceutical vs. Nutranomics | Tianan Pharmaceutical vs. Aion Therapeutic |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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