Correlation Between Haleon PLC and Merck KGaA

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

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

Diversification Opportunities for Haleon PLC and Merck KGaA

0.26

Correlation Coefficient

Haleon PLC  Merck KGaA

Modest diversification

The 3 months correlation between Haleon and Merck is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Haleon PLC and Merck KGaA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA and Haleon PLC 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 Haleon PLC 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 has no effect on the direction of Haleon PLC i.e., Haleon PLC and Merck KGaA go up and down completely randomly.

Pair Corralation between Haleon PLC and Merck KGaA

Assuming the 90 days horizon Haleon PLC is expected to generate 1.13 times more return on investment than Merck KGaA. However, Haleon PLC is 1.13 times more volatile than Merck KGaA. It trades about -0.03 of its potential returns per unit of risk. Merck KGaA is currently generating about -0.12 per unit of risk. If you would invest  935.00  in Haleon PLC on September 29, 2024 and sell it today you would lose (40.00) from holding Haleon PLC or give up 4.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Haleon PLC  vs.  Merck KGaA

Haleon PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Merck KGaA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck KGaA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Haleon PLC and Merck KGaA

The main advantage of trading using opposite Haleon PLC and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Haleon PLC 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 Haleon PLC and Merck KGaA 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 CEOs Directory module to screen CEOs from public companies around the world.