Correlation Between Merck KGaA and Burlington Stores
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and Burlington Stores 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 Burlington Stores into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck KGaA and Burlington Stores, you can compare the effects of market volatilities on Merck KGaA and Burlington Stores 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 Burlington Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Burlington Stores.
Diversification Opportunities for Merck KGaA and Burlington Stores
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Merck and Burlington is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and Burlington Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burlington Stores 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 are associated (or correlated) with Burlington Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burlington Stores has no effect on the direction of Merck KGaA i.e., Merck KGaA and Burlington Stores go up and down completely randomly.
Pair Corralation between Merck KGaA and Burlington Stores
Assuming the 90 days trading horizon Merck KGaA is expected to under-perform the Burlington Stores. But the stock apears to be less risky and, when comparing its historical volatility, Merck KGaA is 1.58 times less risky than Burlington Stores. The stock trades about -0.28 of its potential returns per unit of risk. The Burlington Stores is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest 22,600 in Burlington Stores on September 3, 2024 and sell it today you would earn a total of 4,600 from holding Burlington Stores or generate 20.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merck KGaA vs. Burlington Stores
Performance |
| Timeline |
| Merck KGaA |
| Burlington Stores |
Merck KGaA and Burlington Stores Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and Burlington Stores
The main advantage of trading using opposite Merck KGaA and Burlington Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Burlington Stores 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 Burlington Stores will offset losses from the drop in Burlington Stores' long position.| Merck KGaA vs. Gol Intelligent Airlines | Merck KGaA vs. BJs Wholesale Club | Merck KGaA vs. Fast Retailing Co | Merck KGaA vs. JAPAN AIRLINES |
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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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