Correlation Between Merck and Grifols SA

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

By analyzing existing cross correlation between Merck Company and Grifols SA ADR, you can compare the effects of market volatilities on Merck and Grifols SA 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 Grifols SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merck and Grifols SA.

Diversification Opportunities for Merck and Grifols SA

0.19

Correlation Coefficient

Merck  Grifols SA

Average diversification

The 3 months correlation between Merck and Grifols is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Grifols SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grifols SA ADR 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 Grifols SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grifols SA ADR has no effect on the direction of Merck i.e., Merck and Grifols SA go up and down completely randomly.

Pair Corralation between Merck and Grifols SA

Considering the 90-day investment horizon Merck Company is expected to generate 0.53 times more return on investment than Grifols SA. However, Merck Company is 1.88 times less risky than Grifols SA. It trades about 0.05 of its potential returns per unit of risk. Grifols SA ADR is currently generating about -0.02 per unit of risk. If you would invest  12,552  in Merck Company on January 26, 2024 and sell it today you would earn a total of  148.00  from holding Merck Company or generate 1.18% return on investment over 90 days.

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

Merck Company  vs.  Grifols SA ADR

Merck Company

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Grifols SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grifols SA ADR 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 technical and fundamental indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Merck and Grifols SA

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

The idea behind Merck Company and Grifols SA ADR 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.