Correlation Between Merit Medical and Playtech Plc

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

Diversification Opportunities for Merit Medical and Playtech Plc

0.67

Correlation Coefficient

Merit Medical  Playtech Plc

Poor diversification

The 3 months correlation between Merit and Playtech is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Playtech plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playtech plc 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 Playtech Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playtech plc has no effect on the direction of Merit Medical i.e., Merit Medical and Playtech Plc go up and down completely randomly.

Pair Corralation between Merit Medical and Playtech Plc

Assuming the 90 days trading horizon Merit Medical Systems is expected to generate 1.32 times more return on investment than Playtech Plc. However, Merit Medical is 1.32 times more volatile than Playtech plc. It trades about -0.01 of its potential returns per unit of risk. Playtech plc is currently generating about -0.02 per unit of risk. If you would invest  9,700  in Merit Medical Systems on November 28, 2024 and sell it today you would lose (100.00) from holding Merit Medical Systems or give up 1.03% of portfolio value over 90 days.

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

Merit Medical Systems  vs.  Playtech plc

Merit Medical Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merit Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Merit Medical is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Playtech plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Playtech plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Playtech Plc is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Merit Medical and Playtech Plc

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

The idea behind Merit Medical Systems and Playtech plc 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.