Correlation Between Merit Medical and RCI Hospitality

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

Diversification Opportunities for Merit Medical and RCI Hospitality

0.7

Correlation Coefficient

Merit Medical  RCI Hospitality

Poor diversification

The 3 months correlation between Merit and RCI is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and RCI Hospitality Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCI Hospitality Holdings 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 RCI Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCI Hospitality Holdings has no effect on the direction of Merit Medical i.e., Merit Medical and RCI Hospitality go up and down completely randomly.

Pair Corralation between Merit Medical and RCI Hospitality

Given the investment horizon of 90 days Merit Medical Systems is expected to under-perform the RCI Hospitality. But the stock apears to be less risky and, when comparing its historical volatility, Merit Medical Systems is 1.96 times less risky than RCI Hospitality. The stock trades about -0.02 of its potential returns per unit of risk. The RCI Hospitality Holdings is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  4,515  in RCI Hospitality Holdings on September 23, 2024 and sell it today you would earn a total of  1,165  from holding RCI Hospitality Holdings or generate 25.8% return on investment over 90 days.

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

Merit Medical Systems  vs.  RCI Hospitality Holdings

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.

RCI Hospitality Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental indicators, RCI Hospitality disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and RCI Hospitality

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

The idea behind Merit Medical Systems and RCI Hospitality Holdings 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.