Correlation Between Merit Medical and Select Energy

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

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

Diversification Opportunities for Merit Medical and Select Energy

0.93

Correlation Coefficient

Merit Medical  Select Energy

Almost no diversification

The 3 months correlation between Merit and Select is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy Services and Merit Medical 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 Merit Medical Systems are associated (or correlated) with Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of Merit Medical i.e., Merit Medical and Select Energy go up and down completely randomly.

Pair Corralation between Merit Medical and Select Energy

Assuming the 90 days trading horizon Merit Medical Systems is expected to under-perform the Select Energy. But the stock apears to be less risky and, when comparing its historical volatility, Merit Medical Systems is 2.83 times less risky than Select Energy. The stock trades about -0.19 of its potential returns per unit of risk. The Select Energy Services is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,335  in Select Energy Services on October 8, 2024 and sell it today you would lose (13.00) from holding Select Energy Services or give up 0.97% of portfolio value over 90 days.

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

Merit Medical Systems  vs.  Select Energy Services

Merit Medical Systems

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Merit Medical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Select Energy Services

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Select Energy

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

The idea behind Merit Medical Systems and Select Energy Services 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.

Check out your portfolio center.

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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.