Correlation Between Highlight Communications and Merck

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

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

Diversification Opportunities for Highlight Communications and Merck

-0.03

Correlation Coefficient

Highlight Communications  Merck

Good diversification

The 3 months correlation between Highlight and Merck is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Highlight Communications AG and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Highlight Communications 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 Highlight Communications AG 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 Highlight Communications i.e., Highlight Communications and Merck go up and down completely randomly.

Pair Corralation between Highlight Communications and Merck

Assuming the 90 days trading horizon Highlight Communications AG is expected to generate 2.05 times more return on investment than Merck. However, Highlight Communications is 2.05 times more volatile than Merck Company. It trades about -0.02 of its potential returns per unit of risk. Merck Company is currently generating about -0.12 per unit of risk. If you would invest  126.00  in Highlight Communications AG on September 14, 2024 and sell it today you would lose (11.00) from holding Highlight Communications AG or give up 8.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Highlight Communications AG  vs.  Merck Company

Highlight Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highlight Communications AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Highlight Communications is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private 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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Highlight Communications and Merck

The main advantage of trading using opposite Highlight Communications and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highlight Communications 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 Highlight Communications AG 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.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.