Correlation Between Greater Cannabis and Merck KGaA

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

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

Diversification Opportunities for Greater Cannabis and Merck KGaA

0.59

Correlation Coefficient

Greater Cannabis  Merck KGaA

Very weak diversification

The 3 months correlation between Greater and Merck is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Greater Cannabis and Merck KGaA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck KGaA ADR and Greater Cannabis 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 Greater Cannabis 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 ADR has no effect on the direction of Greater Cannabis i.e., Greater Cannabis and Merck KGaA go up and down completely randomly.

Pair Corralation between Greater Cannabis and Merck KGaA

Given the investment horizon of 90 days Greater Cannabis is expected to generate 20.82 times more return on investment than Merck KGaA. However, Greater Cannabis is 20.82 times more volatile than Merck KGaA ADR. It trades about 0.07 of its potential returns per unit of risk. Merck KGaA ADR is currently generating about -0.12 per unit of risk. If you would invest  0.06  in Greater Cannabis on May 5, 2025 and sell it today you would lose (0.04) from holding Greater Cannabis or give up 66.67% of portfolio value over 90 days.

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

Greater Cannabis  vs.  Merck KGaA ADR

Greater Cannabis

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Greater Cannabis are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Greater Cannabis displayed solid returns over the last few months and may actually be approaching a breakup point.

Merck KGaA ADR

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Greater Cannabis and Merck KGaA

The main advantage of trading using opposite Greater Cannabis and Merck KGaA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Greater Cannabis 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 Greater Cannabis and Merck KGaA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.