Correlation Between Merck and Goodness Growth

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

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

Diversification Opportunities for Merck and Goodness Growth

0.28

Correlation Coefficient

Merck  Goodness Growth

Modest diversification

The 3 months correlation between Merck and Goodness is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and Goodness Growth Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodness Growth 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 Goodness Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodness Growth Holdings has no effect on the direction of Merck i.e., Merck and Goodness Growth go up and down completely randomly.

Pair Corralation between Merck and Goodness Growth

Considering the 90-day investment horizon Merck Company is expected to under-perform the Goodness Growth. But the stock apears to be less risky and, when comparing its historical volatility, Merck Company is 3.66 times less risky than Goodness Growth. The stock trades about -0.08 of its potential returns per unit of risk. The Goodness Growth Holdings is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  55.00  in Goodness Growth Holdings on December 28, 2024 and sell it today you would lose (6.00) from holding Goodness Growth Holdings or give up 10.91% of portfolio value over 90 days.

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

Merck Company  vs.  Goodness Growth Holdings

Merck Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Goodness Growth Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Goodness Growth Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Goodness Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merck and Goodness Growth

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

The idea behind Merck Company and Goodness Growth 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.