Correlation Between Merit Medical and ASML Holding

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

Diversification Opportunities for Merit Medical and ASML Holding

-0.59

Correlation Coefficient

Merit Medical  ASML Holding

Excellent diversification

The 3 months correlation between Merit and ASML is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and ASML Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASML Holding NV 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 ASML Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASML Holding NV has no effect on the direction of Merit Medical i.e., Merit Medical and ASML Holding go up and down completely randomly.

Pair Corralation between Merit Medical and ASML Holding

Assuming the 90 days trading horizon Merit Medical Systems is expected to generate 0.53 times more return on investment than ASML Holding. However, Merit Medical Systems is 1.88 times less risky than ASML Holding. It trades about 0.15 of its potential returns per unit of risk. ASML Holding NV is currently generating about -0.02 per unit of risk. If you would invest  8,600  in Merit Medical Systems on September 13, 2024 and sell it today you would earn a total of  1,350  from holding Merit Medical Systems or generate 15.7% return on investment over 90 days.

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

Merit Medical Systems  vs.  ASML Holding NV

Merit Medical Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 11 (%) 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.

ASML Holding NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ASML Holding NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, ASML Holding 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 ASML Holding

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

The idea behind Merit Medical Systems and ASML Holding NV 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.