Correlation Between Automobile and Mercury
Can any of the company-specific risk be diversified away by investing in both Automobile and Mercury 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 Automobile and Mercury into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Automobile Pc and Mercury, you can compare the effects of market volatilities on Automobile and Mercury 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 Automobile with a short position of Mercury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Automobile and Mercury.
Diversification Opportunities for Automobile and Mercury
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Automobile and Mercury is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Automobile Pc and Mercury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury and Automobile 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 Automobile Pc are associated (or correlated) with Mercury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercury has no effect on the direction of Automobile i.e., Automobile and Mercury go up and down completely randomly.
Pair Corralation between Automobile and Mercury
Assuming the 90 days trading horizon Automobile Pc is expected to under-perform the Mercury. But the stock apears to be less risky and, when comparing its historical volatility, Automobile Pc is 1.01 times less risky than Mercury. The stock trades about -0.05 of its potential returns per unit of risk. The Mercury is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 610,000 in Mercury on September 12, 2024 and sell it today you would lose (285,000) from holding Mercury or give up 46.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Automobile Pc vs. Mercury
Performance |
| Timeline |
| Automobile Pc |
| Mercury |
Automobile and Mercury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Automobile and Mercury
The main advantage of trading using opposite Automobile and Mercury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automobile position performs unexpectedly, Mercury 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 Mercury will offset losses from the drop in Mercury's long position.| Automobile vs. Daou Data Corp | Automobile vs. Solution Advanced Technology | Automobile vs. Busan Industrial Co | Automobile vs. Busan Ind |
| Mercury vs. Eagon Industrial Co | Mercury vs. CG Hi Tech | Mercury vs. Daishin Information Communications | Mercury vs. Nice Information Telecommunication |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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