Correlation Between Merit Medical and Summit Materials

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

Diversification Opportunities for Merit Medical and Summit Materials

0.72

Correlation Coefficient

Merit Medical  Summit Materials

Poor diversification

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

Pair Corralation between Merit Medical and Summit Materials

Given the investment horizon of 90 days Merit Medical Systems is expected to under-perform the Summit Materials. In addition to that, Merit Medical is 5.98 times more volatile than Summit Materials. It trades about -0.28 of its total potential returns per unit of risk. Summit Materials is currently generating about -0.06 per unit of volatility. If you would invest  5,074  in Summit Materials on October 4, 2024 and sell it today you would lose (14.00) from holding Summit Materials or give up 0.28% 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.  Summit Materials

Merit Medical Systems

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Summit Materials

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Summit Materials

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

The idea behind Merit Medical Systems and Summit Materials 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.