Correlation Between Merit Medical and Peijia Medical

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

Diversification Opportunities for Merit Medical and Peijia Medical

-0.06

Correlation Coefficient

Merit Medical  Peijia Medical

Good diversification

The 3 months correlation between Merit and Peijia is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Peijia Medical Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peijia Medical 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 Peijia Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peijia Medical has no effect on the direction of Merit Medical i.e., Merit Medical and Peijia Medical go up and down completely randomly.

Pair Corralation between Merit Medical and Peijia Medical

Assuming the 90 days trading horizon Merit Medical is expected to generate 1.47 times less return on investment than Peijia Medical. But when comparing it to its historical volatility, Merit Medical Systems is 2.07 times less risky than Peijia Medical. It trades about 0.07 of its potential returns per unit of risk. Peijia Medical Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Peijia Medical Limited on October 8, 2024 and sell it today you would earn a total of  3.00  from holding Peijia Medical Limited or generate 7.14% 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.  Peijia Medical Limited

Merit Medical Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Merit Medical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Peijia Medical

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Peijia Medical Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Peijia Medical may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Merit Medical and Peijia Medical

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

The idea behind Merit Medical Systems and Peijia Medical Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.