Correlation Between Merry Electronics and AVY Precision

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

By analyzing existing cross correlation between Merry Electronics Co and AVY Precision Technology, you can compare the effects of market volatilities on Merry Electronics and AVY Precision 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 Merry Electronics with a short position of AVY Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merry Electronics and AVY Precision.

Diversification Opportunities for Merry Electronics and AVY Precision

0.63

Correlation Coefficient

Merry Electronics  AVY Precision

Poor diversification

The 3 months correlation between Merry and AVY is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Merry Electronics Co and AVY Precision Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVY Precision Technology and Merry Electronics 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 Merry Electronics Co are associated (or correlated) with AVY Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVY Precision Technology has no effect on the direction of Merry Electronics i.e., Merry Electronics and AVY Precision go up and down completely randomly.

Pair Corralation between Merry Electronics and AVY Precision

Assuming the 90 days trading horizon Merry Electronics Co is expected to generate 0.55 times more return on investment than AVY Precision. However, Merry Electronics Co is 1.81 times less risky than AVY Precision. It trades about 0.13 of its potential returns per unit of risk. AVY Precision Technology is currently generating about -0.01 per unit of risk. If you would invest  10,750  in Merry Electronics Co on December 29, 2024 and sell it today you would earn a total of  1,550  from holding Merry Electronics Co or generate 14.42% return on investment over 90 days.

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

Merry Electronics Co  vs.  AVY Precision Technology

Merry Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Merry Electronics Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Merry Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

AVY Precision Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days AVY Precision Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, AVY Precision is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Merry Electronics and AVY Precision

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

The idea behind Merry Electronics Co and AVY Precision Technology 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..