Correlation Between Merit Medical and Olympic Steel
Can any of the company-specific risk be diversified away by investing in both Merit Medical and Olympic Steel 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 Olympic Steel 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 Olympic Steel, you can compare the effects of market volatilities on Merit Medical and Olympic Steel 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 Olympic Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Medical and Olympic Steel.
Diversification Opportunities for Merit Medical and Olympic Steel
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Merit and Olympic is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Merit Medical i.e., Merit Medical and Olympic Steel go up and down completely randomly.
Pair Corralation between Merit Medical and Olympic Steel
Given the investment horizon of 90 days Merit Medical is expected to generate 1.13 times less return on investment than Olympic Steel. But when comparing it to its historical volatility, Merit Medical Systems is 2.59 times less risky than Olympic Steel. It trades about 0.28 of its potential returns per unit of risk. Olympic Steel is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,807 in Olympic Steel on August 29, 2024 and sell it today you would earn a total of 344.00 from holding Olympic Steel or generate 9.04% 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. Olympic Steel
Performance |
| Timeline |
| Merit Medical Systems |
| Olympic Steel |
Merit Medical and Olympic Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merit Medical and Olympic Steel
The main advantage of trading using opposite Merit Medical and Olympic Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merit Medical position performs unexpectedly, Olympic Steel 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 Olympic Steel will offset losses from the drop in Olympic Steel's long position.The idea behind Merit Medical Systems and Olympic Steel 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.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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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