Correlation Between Elite Education and Melrose Industries

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

By analyzing existing cross correlation between Elite Education Group and Melrose Industries PLC, you can compare the effects of market volatilities on Elite Education and Melrose Industries 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 Elite Education with a short position of Melrose Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elite Education and Melrose Industries.

Diversification Opportunities for Elite Education and Melrose Industries

0.86

Correlation Coefficient

Elite Education  Melrose Industries

Very poor diversification

The 3 months correlation between Elite and Melrose is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Elite Education Group and Melrose Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melrose Industries PLC and Elite Education 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 Elite Education Group are associated (or correlated) with Melrose Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melrose Industries PLC has no effect on the direction of Elite Education i.e., Elite Education and Melrose Industries go up and down completely randomly.

Pair Corralation between Elite Education and Melrose Industries

Given the investment horizon of 90 days Elite Education Group is expected to under-perform the Melrose Industries. In addition to that, Elite Education is 1.59 times more volatile than Melrose Industries PLC. It trades about -0.01 of its total potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.02 per unit of volatility. If you would invest  730.00  in Melrose Industries PLC on October 9, 2024 and sell it today you would lose (23.00) from holding Melrose Industries PLC or give up 3.15% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	79.67%
Values	Daily Returns

Elite Education Group  vs.  Melrose Industries PLC

Elite Education Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elite Education Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, Elite Education reported solid returns over the last few months and may actually be approaching a breakup point.

Melrose Industries PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elite Education and Melrose Industries

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

The idea behind Elite Education Group and Melrose Industries PLC 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.