Correlation Between Orion Energy and Merck
Can any of the company-specific risk be diversified away by investing in both Orion Energy and Merck 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 Orion Energy and Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Orion Energy Systems and Merck Company, you can compare the effects of market volatilities on Orion Energy and Merck 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 Orion Energy with a short position of Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orion Energy and Merck.
Diversification Opportunities for Orion Energy and Merck
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Orion and Merck is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Orion Energy Systems and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and Orion Energy 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 Orion Energy Systems are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Orion Energy i.e., Orion Energy and Merck go up and down completely randomly.
Pair Corralation between Orion Energy and Merck
Given the investment horizon of 90 days Orion Energy Systems is expected to generate 1.58 times more return on investment than Merck. However, Orion Energy is 1.58 times more volatile than Merck Company. It trades about 0.04 of its potential returns per unit of risk. Merck Company is currently generating about 0.06 per unit of risk. If you would invest 87.00 in Orion Energy Systems on January 25, 2024 and sell it today you would earn a total of 1.00 from holding Orion Energy Systems or generate 1.15% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Orion Energy Systems vs. Merck Company
Performance |
Timeline |
Orion Energy Systems |
Merck Company |
Orion Energy and Merck Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Orion Energy and Merck
The main advantage of trading using opposite Orion Energy and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orion Energy position performs unexpectedly, Merck 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 will offset losses from the drop in Merck's long position.The idea behind Orion Energy Systems and Merck Company 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.Check out your portfolio center.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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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