Correlation Between Cannabusiness and Merck Kgaa

By analyzing existing cross correlation between Cannabusiness Group and Merck Kgaa ADR, you can compare the effects of market volatilities on Cannabusiness 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 Cannabusiness with a short position of Merck Kgaa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cannabusiness and Merck Kgaa.

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Can any of the company-specific risk be diversified away by investing in both Cannabusiness 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 Cannabusiness and Merck Kgaa into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for Cannabusiness and Merck Kgaa

-0.36
  Correlation Coefficient
Cannabusiness Group
Merck Kgaa ADR

Very good diversification

The 3 months correlation between Cannabusiness and Merck is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Cannabusiness Group 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 Cannabusiness 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 Cannabusiness Group 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 Cannabusiness i.e., Cannabusiness and Merck Kgaa go up and down completely randomly.

Pair Corralation between Cannabusiness and Merck Kgaa

Given the investment horizon of 90 days Cannabusiness Group is expected to generate 48.67 times more return on investment than Merck Kgaa. However, Cannabusiness is 48.67 times more volatile than Merck Kgaa ADR. It trades about 0.13 of its potential returns per unit of risk. Merck Kgaa ADR is currently generating about 0.08 per unit of risk. If you would invest  0.15  in Cannabusiness Group on June 30, 2021 and sell it today you would lose (0.14)  from holding Cannabusiness Group or give up 93.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.77%
ValuesDaily Returns

Cannabusiness Group  vs.  Merck Kgaa ADR

 Performance (%) 
      Timeline 
Cannabusiness Group 
 Cannabusiness Performance
14 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Cannabusiness Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Cannabusiness reported solid returns over the last few months and may actually be approaching a breakup point.

Cannabusiness Price Channel

Merck Kgaa ADR 
 Merck Performance
0 of 100
Over the last 90 days Merck Kgaa ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak technical and fundamental indicators, Merck Kgaa showed solid returns over the last few months and may actually be approaching a breakup point.

Cannabusiness and Merck Kgaa Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Cannabusiness and Merck Kgaa

The main advantage of trading using opposite Cannabusiness and Merck Kgaa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cannabusiness 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.
The idea behind Cannabusiness Group and Merck Kgaa ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.

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