Correlation Between Merit Medical and Embecta Corp

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

Diversification Opportunities for Merit Medical and Embecta Corp

0.45

Correlation Coefficient

Merit Medical  Embecta Corp

Very weak diversification

The 3 months correlation between Merit and Embecta is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Embecta Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embecta Corp 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 Embecta Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embecta Corp has no effect on the direction of Merit Medical i.e., Merit Medical and Embecta Corp go up and down completely randomly.

Pair Corralation between Merit Medical and Embecta Corp

Given the investment horizon of 90 days Merit Medical is expected to generate 3.18 times less return on investment than Embecta Corp. But when comparing it to its historical volatility, Merit Medical Systems is 4.1 times less risky than Embecta Corp. It trades about 0.12 of its potential returns per unit of risk. Embecta Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,644  in Embecta Corp on September 4, 2024 and sell it today you would earn a total of  399.00  from holding Embecta Corp or generate 24.27% return on investment over 90 days.

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

Merit Medical Systems  vs.  Embecta Corp

Merit Medical Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Merit Medical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Embecta Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embecta Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Embecta Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Embecta Corp

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

The idea behind Merit Medical Systems and Embecta Corp 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.