Correlation Between IPG Photonics and Merit Medical

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

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

Diversification Opportunities for IPG Photonics and Merit Medical

0.29

Correlation Coefficient

IPG Photonics  Merit Medical

Modest diversification

The 3 months correlation between IPG and Merit is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics 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 IPG Photonics 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 IPG Photonics 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 IPG Photonics i.e., IPG Photonics and Merit Medical go up and down completely randomly.

Pair Corralation between IPG Photonics and Merit Medical

Given the investment horizon of 90 days IPG Photonics is expected to under-perform the Merit Medical. In addition to that, IPG Photonics is 1.75 times more volatile than Merit Medical Systems. It trades about -0.02 of its total potential returns per unit of risk. Merit Medical Systems is currently generating about 0.13 per unit of volatility. If you would invest  7,263  in Merit Medical Systems on October 9, 2024 and sell it today you would earn a total of  2,323  from holding Merit Medical Systems or generate 31.98% return on investment over 90 days.

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

IPG Photonics  vs.  Merit Medical Systems

IPG Photonics

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days IPG Photonics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, IPG Photonics is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Merit Medical Systems

Risk-Adjusted Performance

0 of 100

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IPG Photonics and Merit Medical

The main advantage of trading using opposite IPG Photonics and Merit Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPG Photonics 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 IPG Photonics 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.