Correlation Between Sea and Merit Medical

Can any of the company-specific risk be diversified away by investing in both Sea and Merit Medical 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 Sea and Merit Medical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sea and Merit Medical Systems, you can compare the effects of market volatilities on Sea and Merit Medical 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 Sea with a short position of Merit Medical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sea and Merit Medical.

Diversification Opportunities for Sea and Merit Medical

0.53

Correlation Coefficient

Sea  Merit Medical

Very weak diversification

The 3 months correlation between Sea and Merit is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Sea and Merit Medical Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merit Medical Systems and Sea 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 Sea are associated (or correlated) with Merit Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merit Medical Systems has no effect on the direction of Sea i.e., Sea and Merit Medical go up and down completely randomly.

Pair Corralation between Sea and Merit Medical

Allowing for the 90-day total investment horizon Sea is expected to generate 1.79 times more return on investment than Merit Medical. However, Sea is 1.79 times more volatile than Merit Medical Systems. It trades about 0.07 of its potential returns per unit of risk. Merit Medical Systems is currently generating about 0.01 per unit of risk. If you would invest  11,579  in Sea on December 17, 2024 and sell it today you would earn a total of  1,164  from holding Sea or generate 10.05% return on investment over 90 days.

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

Sea  vs.  Merit Medical Systems

Sea

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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. 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.

Pair Trading with Sea and Merit Medical

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

The idea behind Sea and Merit Medical Systems 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.