Correlation Between Highway Holdings and Merit Medical

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

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

Diversification Opportunities for Highway Holdings and Merit Medical

-0.62

Correlation Coefficient

Highway Holdings  Merit Medical

Excellent diversification

The 3 months correlation between Highway and Merit is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Highway Holdings Limited 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 Highway Holdings 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 Highway Holdings Limited 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 Highway Holdings i.e., Highway Holdings and Merit Medical go up and down completely randomly.

Pair Corralation between Highway Holdings and Merit Medical

Given the investment horizon of 90 days Highway Holdings Limited is expected to under-perform the Merit Medical. But the stock apears to be less risky and, when comparing its historical volatility, Highway Holdings Limited is 1.12 times less risky than Merit Medical. The stock trades about -0.05 of its potential returns per unit of risk. The Merit Medical Systems is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  10,483  in Merit Medical Systems on December 2, 2024 and sell it today you would lose (279.00) from holding Merit Medical Systems or give up 2.66% of portfolio value over 90 days.

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

Highway Holdings Limited  vs.  Merit Medical Systems

Highway Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Highway Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Highway Holdings is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Merit Medical Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merit Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merit Medical is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Highway Holdings and Merit Medical

The main advantage of trading using opposite Highway Holdings and Merit Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Highway Holdings 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 Highway Holdings Limited 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.