Correlation Between PREMIER FOODS and Merit Medical

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

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

Diversification Opportunities for PREMIER FOODS and Merit Medical

-0.09

Correlation Coefficient

PREMIER FOODS  Merit Medical

Good diversification

The 3 months correlation between PREMIER and Merit is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding PREMIER FOODS 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 PREMIER FOODS 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 PREMIER FOODS 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 PREMIER FOODS i.e., PREMIER FOODS and Merit Medical go up and down completely randomly.

Pair Corralation between PREMIER FOODS and Merit Medical

Assuming the 90 days trading horizon PREMIER FOODS is expected to under-perform the Merit Medical. But the stock apears to be less risky and, when comparing its historical volatility, PREMIER FOODS is 1.2 times less risky than Merit Medical. The stock trades about -0.1 of its potential returns per unit of risk. The Merit Medical Systems is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  8,750  in Merit Medical Systems on October 20, 2024 and sell it today you would earn a total of  1,150  from holding Merit Medical Systems or generate 13.14% return on investment over 90 days.

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

PREMIER FOODS  vs.  Merit Medical Systems

PREMIER FOODS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PREMIER FOODS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Merit Medical Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Merit Medical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PREMIER FOODS and Merit Medical

The main advantage of trading using opposite PREMIER FOODS and Merit Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PREMIER FOODS 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 PREMIER FOODS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.