Correlation Between Merck and Burgenland Holding

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

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

Diversification Opportunities for Merck and Burgenland Holding

0.61

Correlation Coefficient

Merck  Burgenland Holding

Poor diversification

The 3 months correlation between Merck and Burgenland is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Burgenland Holding Aktiengesel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burgenland Holding and Merck 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 Company are associated (or correlated) with Burgenland Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burgenland Holding has no effect on the direction of Merck i.e., Merck and Burgenland Holding go up and down completely randomly.

Pair Corralation between Merck and Burgenland Holding

Assuming the 90 days trading horizon Merck Company is expected to under-perform the Burgenland Holding. In addition to that, Merck is 1.16 times more volatile than Burgenland Holding Aktiengesellschaft. It trades about -0.12 of its total potential returns per unit of risk. Burgenland Holding Aktiengesellschaft is currently generating about -0.1 per unit of volatility. If you would invest  7,500  in Burgenland Holding Aktiengesellschaft on September 16, 2024 and sell it today you would lose (500.00) from holding Burgenland Holding Aktiengesellschaft or give up 6.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Merck Company  vs.  Burgenland Holding Aktiengesel

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 latest weak performance, the Stock's forward-looking signals remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Burgenland Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Burgenland Holding Aktiengesellschaft has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Burgenland Holding is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Merck and Burgenland Holding

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

The idea behind Merck Company and Burgenland Holding Aktiengesellschaft 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.