Correlation Between Merit Medical and Toll Brothers

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

Diversification Opportunities for Merit Medical and Toll Brothers

-0.71

Correlation Coefficient

Merit Medical  Toll Brothers

Pay attention - limited upside

The 3 months correlation between Merit and Toll is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Toll Brothers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toll Brothers 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 Toll Brothers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toll Brothers has no effect on the direction of Merit Medical i.e., Merit Medical and Toll Brothers go up and down completely randomly.

Pair Corralation between Merit Medical and Toll Brothers

Assuming the 90 days trading horizon Merit Medical Systems is expected to under-perform the Toll Brothers. But the stock apears to be less risky and, when comparing its historical volatility, Merit Medical Systems is 1.2 times less risky than Toll Brothers. The stock trades about -0.09 of its potential returns per unit of risk. The Toll Brothers is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  8,921  in Toll Brothers on May 7, 2025 and sell it today you would earn a total of  1,644  from holding Toll Brothers or generate 18.43% return on investment over 90 days.

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

Merit Medical Systems  vs.  Toll Brothers

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. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Toll Brothers

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Toll Brothers are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Toll Brothers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Toll Brothers

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

The idea behind Merit Medical Systems and Toll Brothers 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.