Correlation Between SIMCERE PHARMAC and Merck KGaA

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

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

Diversification Opportunities for SIMCERE PHARMAC and Merck KGaA

-0.72

Correlation Coefficient

SIMCERE PHARMAC  Merck KGaA

Pay attention - limited upside

The 3 months correlation between SIMCERE and Merck is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding SIMCERE PHARMAC GRP and Merck KGaA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA and SIMCERE PHARMAC 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 SIMCERE PHARMAC GRP 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 SIMCERE PHARMAC i.e., SIMCERE PHARMAC and Merck KGaA go up and down completely randomly.

Pair Corralation between SIMCERE PHARMAC and Merck KGaA

Assuming the 90 days horizon SIMCERE PHARMAC GRP is expected to generate 1.79 times more return on investment than Merck KGaA. However, SIMCERE PHARMAC is 1.79 times more volatile than Merck KGaA. It trades about 0.12 of its potential returns per unit of risk. Merck KGaA is currently generating about -0.13 per unit of risk. If you would invest  69.00  in SIMCERE PHARMAC GRP on September 12, 2024 and sell it today you would earn a total of  16.00  from holding SIMCERE PHARMAC GRP or generate 23.19% return on investment over 90 days.

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

SIMCERE PHARMAC GRP  vs.  Merck KGaA

SIMCERE PHARMAC GRP

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIMCERE PHARMAC GRP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SIMCERE PHARMAC reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain performance in the last few months, the Stock's forward-looking signals remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with SIMCERE PHARMAC and Merck KGaA

The main advantage of trading using opposite SIMCERE PHARMAC and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIMCERE PHARMAC 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 SIMCERE PHARMAC GRP 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.