Correlation Between Merit Medical and Montauk Renewables

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

Diversification Opportunities for Merit Medical and Montauk Renewables

0.89

Correlation Coefficient

Merit Medical  Montauk Renewables

Very poor diversification

The 3 months correlation between Merit and Montauk is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Montauk Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montauk Renewables 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 Montauk Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montauk Renewables has no effect on the direction of Merit Medical i.e., Merit Medical and Montauk Renewables go up and down completely randomly.

Pair Corralation between Merit Medical and Montauk Renewables

Given the investment horizon of 90 days Merit Medical Systems is expected to generate 0.35 times more return on investment than Montauk Renewables. However, Merit Medical Systems is 2.86 times less risky than Montauk Renewables. It trades about -0.05 of its potential returns per unit of risk. Montauk Renewables is currently generating about -0.09 per unit of risk. If you would invest  7,513  in Merit Medical Systems on January 30, 2024 and sell it today you would lose (135.00) from holding Merit Medical Systems or give up 1.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Merit Medical Systems  vs.  Montauk Renewables

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.

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Merit Medical and Montauk Renewables

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

The idea behind Merit Medical Systems and Montauk Renewables 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.