Correlation Between Electro Sensors and Mesa Laboratories

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

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

Diversification Opportunities for Electro Sensors and Mesa Laboratories

0.23

Correlation Coefficient

Electro Sensors  Mesa Laboratories

Modest diversification

The 3 months correlation between Electro and Mesa is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Electro Sensors and Mesa Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Laboratories and Electro Sensors 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 Electro Sensors are associated (or correlated) with Mesa Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Laboratories has no effect on the direction of Electro Sensors i.e., Electro Sensors and Mesa Laboratories go up and down completely randomly.

Pair Corralation between Electro Sensors and Mesa Laboratories

Given the investment horizon of 90 days Electro Sensors is expected to under-perform the Mesa Laboratories. But the stock apears to be less risky and, when comparing its historical volatility, Electro Sensors is 1.15 times less risky than Mesa Laboratories. The stock trades about -0.13 of its potential returns per unit of risk. The Mesa Laboratories is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  13,546  in Mesa Laboratories on December 25, 2024 and sell it today you would lose (701.00) from holding Mesa Laboratories or give up 5.17% of portfolio value over 90 days.

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

Electro Sensors  vs.  Mesa Laboratories

Electro Sensors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electro Sensors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Mesa Laboratories

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Electro Sensors and Mesa Laboratories

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

The idea behind Electro Sensors and Mesa Laboratories 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.