Correlation Between Grindrod and Merck

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

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

Diversification Opportunities for Grindrod and Merck

-0.69

Correlation Coefficient

Grindrod  Merck

Excellent diversification

The 3 months correlation between Grindrod and Merck is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Grindrod Ltd ADR and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Grindrod 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 Grindrod Ltd ADR are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Grindrod i.e., Grindrod and Merck go up and down completely randomly.

Pair Corralation between Grindrod and Merck

Assuming the 90 days horizon Grindrod Ltd ADR is expected to generate 0.08 times more return on investment than Merck. However, Grindrod Ltd ADR is 13.04 times less risky than Merck. It trades about 0.13 of its potential returns per unit of risk. Merck Company is currently generating about -0.17 per unit of risk. If you would invest  1,787  in Grindrod Ltd ADR on September 4, 2024 and sell it today you would earn a total of  13.00  from holding Grindrod Ltd ADR or generate 0.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Grindrod Ltd ADR  vs.  Merck Company

Grindrod ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grindrod Ltd ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Grindrod is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Grindrod and Merck

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

The idea behind Grindrod Ltd ADR and Merck Company 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.