Correlation Between Merit Medical and Charlottes Web

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

Diversification Opportunities for Merit Medical and Charlottes Web

-0.39

Correlation Coefficient

Merit Medical  Charlottes Web

Very good diversification

The 3 months correlation between Merit and Charlottes is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Charlottes Web Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charlottes Web 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 Charlottes Web. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charlottes Web Holdings has no effect on the direction of Merit Medical i.e., Merit Medical and Charlottes Web go up and down completely randomly.

Pair Corralation between Merit Medical and Charlottes Web

Given the investment horizon of 90 days Merit Medical is expected to generate 1.72 times less return on investment than Charlottes Web. But when comparing it to its historical volatility, Merit Medical Systems is 4.89 times less risky than Charlottes Web. It trades about 0.13 of its potential returns per unit of risk. Charlottes Web Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Charlottes Web Holdings on March 12, 2024 and sell it today you would earn a total of  1.00  from holding Charlottes Web Holdings or generate 6.25% return on investment over 90 days.

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

Merit Medical Systems  vs.  Charlottes Web Holdings

Merit Medical Systems

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merit Medical Systems are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Merit Medical may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Charlottes Web Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Charlottes Web Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical indicators, Charlottes Web reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Merit Medical and Charlottes Web

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

The idea behind Merit Medical Systems and Charlottes Web 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.