Correlation Between Cheesecake Factory and Merit Medical

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

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

Diversification Opportunities for Cheesecake Factory and Merit Medical

0.75

Correlation Coefficient

Cheesecake Factory  Merit Medical

Poor diversification

The 3 months correlation between Cheesecake and Merit is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory 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 Cheesecake Factory 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 The Cheesecake Factory 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 Cheesecake Factory i.e., Cheesecake Factory and Merit Medical go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Merit Medical

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 1.82 times more return on investment than Merit Medical. However, Cheesecake Factory is 1.82 times more volatile than Merit Medical Systems. It trades about 0.09 of its potential returns per unit of risk. Merit Medical Systems is currently generating about -0.25 per unit of risk. If you would invest  4,656  in The Cheesecake Factory on September 23, 2024 and sell it today you would earn a total of  181.00  from holding The Cheesecake Factory or generate 3.89% return on investment over 90 days.

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

The Cheesecake Factory  vs.  Merit Medical Systems

The Cheesecake Factory

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Cheesecake Factory and Merit Medical

The main advantage of trading using opposite Cheesecake Factory and Merit Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheesecake Factory 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 The Cheesecake Factory 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.