Correlation Between Merit Medical and GMS

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

Diversification Opportunities for Merit Medical and GMS

0.72

Correlation Coefficient

Merit Medical  GMS

Poor diversification

The 3 months correlation between Merit and GMS is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc 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 GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Merit Medical i.e., Merit Medical and GMS go up and down completely randomly.

Pair Corralation between Merit Medical and GMS

Given the investment horizon of 90 days Merit Medical Systems is expected to generate 0.63 times more return on investment than GMS. However, Merit Medical Systems is 1.6 times less risky than GMS. It trades about 0.11 of its potential returns per unit of risk. GMS Inc is currently generating about 0.04 per unit of risk. If you would invest  8,296  in Merit Medical Systems on September 24, 2024 and sell it today you would earn a total of  1,526  from holding Merit Medical Systems or generate 18.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Merit Medical Systems  vs.  GMS Inc

Merit Medical Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merit Medical Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Merit Medical is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

GMS Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Merit Medical and GMS

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

The idea behind Merit Medical Systems and GMS Inc 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.