Correlation Between Merck and Organogenesis Holdings

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

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

Diversification Opportunities for Merck and Organogenesis Holdings

-0.76

Correlation Coefficient

Merck  Organogenesis Holdings

Pay attention - limited upside

The 3 months correlation between Merck and Organogenesis is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Organogenesis Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Organogenesis Holdings 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 Organogenesis Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Organogenesis Holdings has no effect on the direction of Merck i.e., Merck and Organogenesis Holdings go up and down completely randomly.

Pair Corralation between Merck and Organogenesis Holdings

Considering the 90-day investment horizon Merck Company is expected to under-perform the Organogenesis Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 4.05 times less risky than Organogenesis Holdings. The stock trades about -0.18 of its potential returns per unit of risk. The Organogenesis Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  281.00  in Organogenesis Holdings on September 13, 2024 and sell it today you would earn a total of  85.00  from holding Organogenesis Holdings or generate 30.25% return on investment over 90 days.

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

Merck Company  vs.  Organogenesis Holdings

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Organogenesis Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Organogenesis Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Organogenesis Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merck and Organogenesis Holdings

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

The idea behind Merck Company and Organogenesis Holdings 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..