Correlation Between Merit Medical and Kaiser Aluminum

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

Diversification Opportunities for Merit Medical and Kaiser Aluminum

0.77

Correlation Coefficient

Merit Medical  Kaiser Aluminum

Poor diversification

The 3 months correlation between Merit and Kaiser is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Merit Medical i.e., Merit Medical and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Merit Medical and Kaiser Aluminum

Assuming the 90 days trading horizon Merit Medical is expected to generate 1.16 times less return on investment than Kaiser Aluminum. In addition to that, Merit Medical is 1.13 times more volatile than Kaiser Aluminum. It trades about 0.33 of its total potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.43 per unit of volatility. If you would invest  6,650  in Kaiser Aluminum on October 22, 2024 and sell it today you would earn a total of  550.00  from holding Kaiser Aluminum or generate 8.27% return on investment over 90 days.

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

Merit Medical Systems  vs.  Kaiser Aluminum

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

Kaiser Aluminum

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Kaiser Aluminum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Kaiser Aluminum

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

The idea behind Merit Medical Systems and Kaiser Aluminum 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.