Correlation Between Timken and Merit Medical

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

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

Diversification Opportunities for Timken and Merit Medical

-0.8

Correlation Coefficient

Timken  Merit Medical

Pay attention - limited upside

The 3 months correlation between Timken and Merit is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Timken Company 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 Timken 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 Timken Company 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 Timken i.e., Timken and Merit Medical go up and down completely randomly.

Pair Corralation between Timken and Merit Medical

Considering the 90-day investment horizon Timken Company is expected to under-perform the Merit Medical. In addition to that, Timken is 1.36 times more volatile than Merit Medical Systems. It trades about 0.0 of its total potential returns per unit of risk. Merit Medical Systems is currently generating about 0.12 per unit of volatility. If you would invest  7,103  in Merit Medical Systems on September 14, 2024 and sell it today you would earn a total of  3,172  from holding Merit Medical Systems or generate 44.66% return on investment over 90 days.

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

Timken Company  vs.  Merit Medical Systems

Timken Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Timken Company has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Timken is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Merit Medical Systems

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Merit Medical is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Timken and Merit Medical

The main advantage of trading using opposite Timken and Merit Medical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Timken 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 Timken Company 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.