Correlation Between General Interface and Merry Electronics

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

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

Diversification Opportunities for General Interface and Merry Electronics

0.35

Correlation Coefficient

General Interface  Merry Electronics

Weak diversification

The 3 months correlation between General and Merry is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding General Interface Solution and Merry Electronics Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merry Electronics and General Interface 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 General Interface Solution are associated (or correlated) with Merry Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merry Electronics has no effect on the direction of General Interface i.e., General Interface and Merry Electronics go up and down completely randomly.

Pair Corralation between General Interface and Merry Electronics

Assuming the 90 days trading horizon General Interface is expected to generate 1.48 times less return on investment than Merry Electronics. In addition to that, General Interface is 1.2 times more volatile than Merry Electronics Co. It trades about 0.09 of its total potential returns per unit of risk. Merry Electronics Co is currently generating about 0.15 per unit of volatility. If you would invest  10,700  in Merry Electronics Co on December 21, 2024 and sell it today you would earn a total of  1,850  from holding Merry Electronics Co or generate 17.29% return on investment over 90 days.

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

General Interface Solution  vs.  Merry Electronics Co

General Interface

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Interface Solution are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, General Interface showed solid returns over the last few months and may actually be approaching a breakup point.

Merry Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Merry Electronics Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Merry Electronics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Interface and Merry Electronics

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

The idea behind General Interface Solution and Merry Electronics Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.