Correlation Between Mercury and Asia Pacific

Can any of the company-specific risk be diversified away by investing in both Mercury and Asia Pacific 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 Mercury and Asia Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mercury and Asia Pacific Satellite, you can compare the effects of market volatilities on Mercury and Asia Pacific 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 Mercury with a short position of Asia Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercury and Asia Pacific.

Diversification Opportunities for Mercury and Asia Pacific

0.74

Correlation Coefficient

Mercury  Asia Pacific

Poor diversification

The 3 months correlation between Mercury and Asia is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Mercury and Asia Pacific Satellite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Pacific Satellite and Mercury 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 Mercury are associated (or correlated) with Asia Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Pacific Satellite has no effect on the direction of Mercury i.e., Mercury and Asia Pacific go up and down completely randomly.

Pair Corralation between Mercury and Asia Pacific

Assuming the 90 days trading horizon Mercury is expected to under-perform the Asia Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Mercury is 1.21 times less risky than Asia Pacific. The stock trades about -0.01 of its potential returns per unit of risk. The Asia Pacific Satellite is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,048,395  in Asia Pacific Satellite on October 11, 2024 and sell it today you would earn a total of  268,605  from holding Asia Pacific Satellite or generate 25.62% return on investment over 90 days.

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

Mercury  vs.  Asia Pacific Satellite

Mercury

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mercury may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Asia Pacific Satellite

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Pacific Satellite are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Asia Pacific sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercury and Asia Pacific

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

The idea behind Mercury and Asia Pacific Satellite 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.