Correlation Between Merck KGaA and Acerus Pharmaceuticals

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

By analyzing existing cross correlation between Merck KGaA ADR and Acerus Pharmaceuticals, you can compare the effects of market volatilities on Merck KGaA and Acerus Pharmaceuticals 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 Acerus Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and Acerus Pharmaceuticals.

Diversification Opportunities for Merck KGaA and Acerus Pharmaceuticals

-0.48

Correlation Coefficient

Merck KGaA  Acerus Pharmaceuticals

Very good diversification

The 3 months correlation between Merck and Acerus is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and Acerus Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acerus Pharmaceuticals 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 ADR are associated (or correlated) with Acerus Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acerus Pharmaceuticals has no effect on the direction of Merck KGaA i.e., Merck KGaA and Acerus Pharmaceuticals go up and down completely randomly.

Pair Corralation between Merck KGaA and Acerus Pharmaceuticals

Assuming the 90 days horizon Merck KGaA ADR is expected to generate 0.24 times more return on investment than Acerus Pharmaceuticals. However, Merck KGaA ADR is 4.12 times less risky than Acerus Pharmaceuticals. It trades about 0.0 of its potential returns per unit of risk. Acerus Pharmaceuticals is currently generating about -0.12 per unit of risk. If you would invest  3,497  in Merck KGaA ADR on January 24, 2024 and sell it today you would lose (358.00) from holding Merck KGaA ADR or give up 10.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	44.24%
Values	Daily Returns

Merck KGaA ADR  vs.  Acerus Pharmaceuticals

Merck KGaA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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 strong technical and fundamental indicators, Merck KGaA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Acerus Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Acerus Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Acerus Pharmaceuticals is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck KGaA and Acerus Pharmaceuticals

The main advantage of trading using opposite Merck KGaA and Acerus Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck KGaA position performs unexpectedly, Acerus Pharmaceuticals 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 Acerus Pharmaceuticals will offset losses from the drop in Acerus Pharmaceuticals' long position.

The idea behind Merck KGaA ADR and Acerus Pharmaceuticals 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.

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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.