Correlation Between Merck and Orion Energy

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

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

Diversification Opportunities for Merck and Orion Energy

-0.47

Correlation Coefficient

Merck  Orion Energy

Very good diversification

The 3 months correlation between Merck and Orion is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Orion Energy Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orion Energy Systems 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 Orion Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orion Energy Systems has no effect on the direction of Merck i.e., Merck and Orion Energy go up and down completely randomly.

Pair Corralation between Merck and Orion Energy

Considering the 90-day investment horizon Merck Company is expected to generate 0.34 times more return on investment than Orion Energy. However, Merck Company is 2.93 times less risky than Orion Energy. It trades about 0.05 of its potential returns per unit of risk. Orion Energy Systems is currently generating about -0.05 per unit of risk. If you would invest  11,057  in Merck Company on January 19, 2024 and sell it today you would earn a total of  1,466  from holding Merck Company or generate 13.26% return on investment over 90 days.

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

Merck Company  vs.  Orion Energy Systems

Merck Company

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 7 (%) 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.

Orion Energy Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orion Energy Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Merck and Orion Energy

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

The idea behind Merck Company and Orion Energy Systems 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.