Correlation Between Merit Medical and Sun Country

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

Diversification Opportunities for Merit Medical and Sun Country

0.7

Correlation Coefficient

Merit Medical  Sun Country

Poor diversification

The 3 months correlation between Merit and Sun is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Sun Country Airlines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Country Airlines 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 Sun Country. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Country Airlines has no effect on the direction of Merit Medical i.e., Merit Medical and Sun Country go up and down completely randomly.

Pair Corralation between Merit Medical and Sun Country

Given the investment horizon of 90 days Merit Medical Systems is expected to under-perform the Sun Country. But the stock apears to be less risky and, when comparing its historical volatility, Merit Medical Systems is 2.52 times less risky than Sun Country. The stock trades about -0.24 of its potential returns per unit of risk. The Sun Country Airlines is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,461  in Sun Country Airlines on September 19, 2024 and sell it today you would lose (28.00) from holding Sun Country Airlines or give up 1.92% 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.  Sun Country Airlines

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Sun Country Airlines

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Country Airlines are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Sun Country showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Sun Country

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

The idea behind Merit Medical Systems and Sun Country Airlines 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..