Correlation Between Merck KGaA and FAST RETAIL
Can any of the company-specific risk be diversified away by investing in both Merck KGaA and FAST RETAIL 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 FAST RETAIL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merck KGaA and FAST RETAIL ADR, you can compare the effects of market volatilities on Merck KGaA and FAST RETAIL 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 FAST RETAIL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and FAST RETAIL.
Diversification Opportunities for Merck KGaA and FAST RETAIL
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Merck and FAST is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA and FAST RETAIL ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAST RETAIL ADR 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 FAST RETAIL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAST RETAIL ADR has no effect on the direction of Merck KGaA i.e., Merck KGaA and FAST RETAIL go up and down completely randomly.
Pair Corralation between Merck KGaA and FAST RETAIL
Assuming the 90 days trading horizon Merck KGaA is expected to generate 8.63 times less return on investment than FAST RETAIL. But when comparing it to its historical volatility, Merck KGaA is 1.43 times less risky than FAST RETAIL. It trades about 0.01 of its potential returns per unit of risk. FAST RETAIL ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,219 in FAST RETAIL ADR on September 4, 2024 and sell it today you would earn a total of 941.00 from holding FAST RETAIL ADR or generate 42.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Merck KGaA vs. FAST RETAIL ADR
Performance |
| Timeline |
| Merck KGaA |
| FAST RETAIL ADR |
Merck KGaA and FAST RETAIL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merck KGaA and FAST RETAIL
The main advantage of trading using opposite Merck KGaA and FAST RETAIL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, FAST RETAIL 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 FAST RETAIL will offset losses from the drop in FAST RETAIL's long position.| Merck KGaA vs. Superior Plus Corp | Merck KGaA vs. NMI Holdings | Merck KGaA vs. Origin Agritech | Merck KGaA vs. SIVERS SEMICONDUCTORS AB |
| FAST RETAIL vs. FAST RETAILCOSPHDR 1 | FAST RETAIL vs. Ross Stores | FAST RETAIL vs. Genesco | FAST RETAIL vs. Stitch Fix |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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