Correlation Between Merit Medical and Franco Nevada

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

Diversification Opportunities for Merit Medical and Franco Nevada

-0.34

Correlation Coefficient

Merit Medical  Franco Nevada

Very good diversification

The 3 months correlation between Merit and Franco is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Franco Nevada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franco Nevada 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 Franco Nevada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franco Nevada has no effect on the direction of Merit Medical i.e., Merit Medical and Franco Nevada go up and down completely randomly.

Pair Corralation between Merit Medical and Franco Nevada

Assuming the 90 days trading horizon Merit Medical is expected to generate 1.51 times less return on investment than Franco Nevada. But when comparing it to its historical volatility, Merit Medical Systems is 1.24 times less risky than Franco Nevada. It trades about 0.27 of its potential returns per unit of risk. Franco Nevada is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  11,135  in Franco Nevada on October 23, 2024 and sell it today you would earn a total of  1,010  from holding Franco Nevada or generate 9.07% 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.  Franco Nevada

Merit Medical Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 9 (%) 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.

Franco Nevada

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merit Medical and Franco Nevada

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

The idea behind Merit Medical Systems and Franco Nevada 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.