Correlation Between Merit Medical and Consol Energy
Can any of the company-specific risk be diversified away by investing in both Merit Medical and Consol Energy 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 Consol Energy 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 Consol Energy, you can compare the effects of market volatilities on Merit Medical and Consol Energy 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 Consol Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Medical and Consol Energy.
Diversification Opportunities for Merit Medical and Consol Energy
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merit and Consol is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Consol Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consol Energy 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 Consol Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consol Energy has no effect on the direction of Merit Medical i.e., Merit Medical and Consol Energy go up and down completely randomly.
Pair Corralation between Merit Medical and Consol Energy
Given the investment horizon of 90 days Merit Medical is expected to generate 4.13 times less return on investment than Consol Energy. But when comparing it to its historical volatility, Merit Medical Systems is 2.56 times less risky than Consol Energy. It trades about 0.2 of its potential returns per unit of risk. Consol Energy is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 10,785 in Consol Energy on September 3, 2024 and sell it today you would earn a total of 2,285 from holding Consol Energy or generate 21.19% 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. Consol Energy
Performance |
| Timeline |
| Merit Medical Systems |
| Consol Energy |
Merit Medical and Consol Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merit Medical and Consol Energy
The main advantage of trading using opposite Merit Medical and Consol Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merit Medical position performs unexpectedly, Consol Energy 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 Consol Energy will offset losses from the drop in Consol Energy's long position.The idea behind Merit Medical Systems and Consol Energy 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.| Consol Energy vs. Alliance Resource Partners | Consol Energy vs. Natural Resource Partners | Consol Energy vs. Hallador Energy | Consol Energy vs. NACCO Industries |
Check out your portfolio center.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 Transaction History module to view history of all your transactions and understand their impact on performance.
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