Correlation Between Merck KGaA and EVIO

Can any of the company-specific risk be diversified away by investing in both Merck KGaA and EVIO 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 EVIO 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 EVIO Inc, you can compare the effects of market volatilities on Merck KGaA and EVIO 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 EVIO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck KGaA and EVIO.

Diversification Opportunities for Merck KGaA and EVIO

-0.4

Correlation Coefficient

Merck KGaA  EVIO

Very good diversification

The 3 months correlation between Merck and EVIO is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Merck KGaA ADR and EVIO Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EVIO Inc 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 EVIO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EVIO Inc has no effect on the direction of Merck KGaA i.e., Merck KGaA and EVIO go up and down completely randomly.

Pair Corralation between Merck KGaA and EVIO

Assuming the 90 days horizon Merck KGaA ADR is expected to under-perform the EVIO. But the pink sheet apears to be less risky and, when comparing its historical volatility, Merck KGaA ADR is 195.33 times less risky than EVIO. The pink sheet trades about -0.19 of its potential returns per unit of risk. The EVIO Inc is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  0.00  in EVIO Inc on September 11, 2024 and sell it today you would earn a total of  0.00  from holding EVIO Inc or generate 0.0% return on investment over 90 days.

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

Merck KGaA ADR  vs.  EVIO Inc

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 fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

EVIO Inc

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in EVIO Inc are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting forward indicators, EVIO displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck KGaA and EVIO

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

The idea behind Merck KGaA ADR and EVIO Inc 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.