Correlation Between Siemens Healthineers and Merck KGaA
Can any of the company-specific risk be diversified away by investing in both Siemens Healthineers and Merck KGaA 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 Siemens Healthineers and Merck KGaA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Siemens Healthineers AG and Merck KGaA ADR, you can compare the effects of market volatilities on Siemens Healthineers and Merck KGaA 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 Siemens Healthineers with a short position of Merck KGaA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Siemens Healthineers and Merck KGaA.
Diversification Opportunities for Siemens Healthineers and Merck KGaA
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Siemens and Merck is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Siemens Healthineers AG and Merck KGaA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA ADR and Siemens Healthineers 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 Siemens Healthineers AG are associated (or correlated) with Merck KGaA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck KGaA ADR has no effect on the direction of Siemens Healthineers i.e., Siemens Healthineers and Merck KGaA go up and down completely randomly.
Pair Corralation between Siemens Healthineers and Merck KGaA
Assuming the 90 days horizon Siemens Healthineers AG is expected to generate 0.88 times more return on investment than Merck KGaA. However, Siemens Healthineers AG is 1.14 times less risky than Merck KGaA. It trades about 0.01 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.01 per unit of risk. If you would invest 2,580 in Siemens Healthineers AG on August 26, 2024 and sell it today you would lose (6.00) from holding Siemens Healthineers AG or give up 0.23% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Siemens Healthineers AG vs. Merck KGaA ADR
Performance |
| Timeline |
| Siemens Healthineers |
| Merck KGaA ADR |
Siemens Healthineers and Merck KGaA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Siemens Healthineers and Merck KGaA
The main advantage of trading using opposite Siemens Healthineers and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Siemens Healthineers position performs unexpectedly, Merck KGaA 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 Merck KGaA will offset losses from the drop in Merck KGaA's long position.| Siemens Healthineers vs. Merck KGaA ADR | Siemens Healthineers vs. CSL | Siemens Healthineers vs. Essilor International SA | Siemens Healthineers vs. Hoya Corp |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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