Correlation Between Merit Medical and Inspire Medical

Can any of the company-specific risk be diversified away by investing in both Merit Medical and Inspire 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 Merit Medical and Inspire Medical 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 Inspire Medical Systems, you can compare the effects of market volatilities on Merit Medical and Inspire 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 Merit Medical with a short position of Inspire Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Medical and Inspire Medical.

Diversification Opportunities for Merit Medical and Inspire Medical

-0.22

Correlation Coefficient

Merit Medical  Inspire Medical

Very good diversification

The 3 months correlation between Merit and Inspire is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Inspire Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inspire Medical Systems 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 Inspire Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inspire Medical Systems has no effect on the direction of Merit Medical i.e., Merit Medical and Inspire Medical go up and down completely randomly.

Pair Corralation between Merit Medical and Inspire Medical

Assuming the 90 days trading horizon Merit Medical Systems is expected to generate 0.46 times more return on investment than Inspire Medical. However, Merit Medical Systems is 2.15 times less risky than Inspire Medical. It trades about 0.06 of its potential returns per unit of risk. Inspire Medical Systems is currently generating about 0.0 per unit of risk. If you would invest  6,550  in Merit Medical Systems on October 24, 2024 and sell it today you would earn a total of  3,400  from holding Merit Medical Systems or generate 51.91% return on investment over 90 days.

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

Merit Medical Systems  vs.  Inspire Medical Systems

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 fragile basic indicators, Merit Medical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Inspire Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inspire Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Inspire Medical is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Merit Medical and Inspire Medical

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

The idea behind Merit Medical Systems and Inspire 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 Correlations module to find global opportunities by holding instruments from different markets.