Correlation Between Cumberland Pharmaceuticals and Merit Medical

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

By analyzing existing cross correlation between Cumberland Pharmaceuticals and Merit Medical Systems, you can compare the effects of market volatilities on Cumberland Pharmaceuticals and Merit Medical 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 Cumberland Pharmaceuticals with a short position of Merit Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cumberland Pharmaceuticals and Merit Medical.

Diversification Opportunities for Cumberland Pharmaceuticals and Merit Medical

-0.58

Correlation Coefficient

Cumberland Pharmaceuticals  Merit Medical

Excellent diversification

The 3 months correlation between Cumberland and Merit is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Cumberland Pharmaceuticals and Merit Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merit Medical Systems and Cumberland Pharmaceuticals 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 Cumberland Pharmaceuticals are associated (or correlated) with Merit Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merit Medical Systems has no effect on the direction of Cumberland Pharmaceuticals i.e., Cumberland Pharmaceuticals and Merit Medical go up and down completely randomly.

Pair Corralation between Cumberland Pharmaceuticals and Merit Medical

Given the investment horizon of 90 days Cumberland Pharmaceuticals is expected to generate 1.11 times less return on investment than Merit Medical. In addition to that, Cumberland Pharmaceuticals is 3.24 times more volatile than Merit Medical Systems. It trades about 0.03 of its total potential returns per unit of risk. Merit Medical Systems is currently generating about 0.12 per unit of volatility. If you would invest  9,557  in Merit Medical Systems on September 2, 2024 and sell it today you would earn a total of  833.00  from holding Merit Medical Systems or generate 8.72% return on investment over 90 days.

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

Cumberland Pharmaceuticals  vs.  Merit Medical Systems

Cumberland Pharmaceuticals

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cumberland Pharmaceuticals are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Cumberland Pharmaceuticals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Merit Medical Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Merit Medical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cumberland Pharmaceuticals and Merit Medical

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

The idea behind Cumberland Pharmaceuticals and Merit Medical 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.