Correlation Between Merck and UBM Development
Can any of the company-specific risk be diversified away by investing in both Merck and UBM Development 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 and UBM Development into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck Company and UBM Development AG, you can compare the effects of market volatilities on Merck and UBM Development 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 with a short position of UBM Development. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and UBM Development.
Diversification Opportunities for Merck and UBM Development
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Merck and UBM is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and UBM Development AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UBM Development AG and Merck 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 Company are associated (or correlated) with UBM Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UBM Development AG has no effect on the direction of Merck i.e., Merck and UBM Development go up and down completely randomly.
Pair Corralation between Merck and UBM Development
Assuming the 90 days trading horizon Merck Company is expected to generate 0.94 times more return on investment than UBM Development. However, Merck Company is 1.07 times less risky than UBM Development. It trades about 0.01 of its potential returns per unit of risk. UBM Development AG is currently generating about -0.28 per unit of risk. If you would invest 9,640 in Merck Company on August 28, 2024 and sell it today you would earn a total of 20.00 from holding Merck Company or generate 0.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck Company vs. UBM Development AG
Performance |
| Timeline |
| Merck Company |
| UBM Development AG |
Merck and UBM Development Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck and UBM Development
The main advantage of trading using opposite Merck and UBM Development positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck position performs unexpectedly, UBM Development 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 UBM Development will offset losses from the drop in UBM Development's long position.| Merck vs. RATH Aktiengesellschaft | Merck vs. AT S Austria | Merck vs. BAWAG Group AG | Merck vs. Semperit Aktiengesellschaft Holding |
| UBM Development vs. CA Immobilien Anlagen | UBM Development vs. S IMMO AG | UBM Development vs. IMMOFINANZ AG | UBM Development vs. Wienerberger AG |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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