Correlation Between Merit Medical and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both Merit Medical and Emerson Electric 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 Emerson Electric 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 Emerson Electric, you can compare the effects of market volatilities on Merit Medical and Emerson Electric 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 Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Medical and Emerson Electric.
Diversification Opportunities for Merit Medical and Emerson Electric
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merit and Emerson is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric 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 Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of Merit Medical i.e., Merit Medical and Emerson Electric go up and down completely randomly.
Pair Corralation between Merit Medical and Emerson Electric
Given the investment horizon of 90 days Merit Medical is expected to generate 2.28 times less return on investment than Emerson Electric. But when comparing it to its historical volatility, Merit Medical Systems is 1.63 times less risky than Emerson Electric. It trades about 0.29 of its potential returns per unit of risk. Emerson Electric is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest 10,857 in Emerson Electric on August 31, 2024 and sell it today you would earn a total of 2,402 from holding Emerson Electric or generate 22.12% 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. Emerson Electric
Performance |
| Timeline |
| Merit Medical Systems |
| Emerson Electric |
Merit Medical and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merit Medical and Emerson Electric
The main advantage of trading using opposite Merit Medical and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merit Medical position performs unexpectedly, Emerson Electric 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 Emerson Electric will offset losses from the drop in Emerson Electric's long position.| Merit Medical vs. Teleflex Incorporated | Merit Medical vs. The Cooper Companies, | Merit Medical vs. West Pharmaceutical Services | Merit Medical vs. ICU Medical |
| Emerson Electric vs. Dover | Emerson Electric vs. Parker Hannifin | Emerson Electric vs. Pentair PLC | Emerson Electric vs. Eaton PLC |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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