Correlation Between Merit Medical and Phillips

Can any of the company-specific risk be diversified away by investing in both Merit Medical and Phillips 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 Phillips 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 Phillips 66, you can compare the effects of market volatilities on Merit Medical and Phillips 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 Phillips. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Medical and Phillips.

Diversification Opportunities for Merit Medical and Phillips

0.32

Correlation Coefficient

Merit Medical  Phillips

Weak diversification

The 3 months correlation between Merit and Phillips is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Phillips 66 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips 66 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 Phillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips 66 has no effect on the direction of Merit Medical i.e., Merit Medical and Phillips go up and down completely randomly.

Pair Corralation between Merit Medical and Phillips

Assuming the 90 days trading horizon Merit Medical Systems is expected to generate 0.71 times more return on investment than Phillips. However, Merit Medical Systems is 1.41 times less risky than Phillips. It trades about -0.21 of its potential returns per unit of risk. Phillips 66 is currently generating about -0.47 per unit of risk. If you would invest  9,800  in Merit Medical Systems on September 27, 2024 and sell it today you would lose (550.00) from holding Merit Medical Systems or give up 5.61% of portfolio value over 90 days.

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

Merit Medical Systems  vs.  Phillips 66

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 January 2025.

Phillips 66

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Phillips 66 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Merit Medical and Phillips

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

The idea behind Merit Medical Systems and Phillips 66 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.