Correlation Between Asia Pacific and Mercury

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

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

Diversification Opportunities for Asia Pacific and Mercury

0.66

Correlation Coefficient

Asia Pacific  Mercury

Poor diversification

The 3 months correlation between Asia and Mercury is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Asia Pacific Satellite and Mercury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury and Asia Pacific 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 Asia Pacific Satellite 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 Asia Pacific i.e., Asia Pacific and Mercury go up and down completely randomly.

Pair Corralation between Asia Pacific and Mercury

Assuming the 90 days trading horizon Asia Pacific Satellite is expected to generate 0.81 times more return on investment than Mercury. However, Asia Pacific Satellite is 1.23 times less risky than Mercury. It trades about -0.01 of its potential returns per unit of risk. Mercury is currently generating about -0.02 per unit of risk. If you would invest  1,272,878  in Asia Pacific Satellite on December 23, 2024 and sell it today you would lose (47,878) from holding Asia Pacific Satellite or give up 3.76% of portfolio value over 90 days.

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

Asia Pacific Satellite  vs.  Mercury

Asia Pacific Satellite

Risk-Adjusted Performance

Very Weak

Over the last 90 days Asia Pacific Satellite has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Asia Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mercury

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mercury has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mercury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Asia Pacific and Mercury

The main advantage of trading using opposite Asia Pacific and Mercury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asia Pacific 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.

The idea behind Asia Pacific Satellite and Mercury 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..