Correlation Between Elbit Systems and Mercury Systems

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

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

Diversification Opportunities for Elbit Systems and Mercury Systems

0.5

Correlation Coefficient

Elbit Systems  Mercury Systems

Very weak diversification

The 3 months correlation between Elbit and Mercury is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Systems and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Elbit Systems 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 Elbit Systems are associated (or correlated) with Mercury Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercury Systems has no effect on the direction of Elbit Systems i.e., Elbit Systems and Mercury Systems go up and down completely randomly.

Pair Corralation between Elbit Systems and Mercury Systems

Given the investment horizon of 90 days Elbit Systems is expected to generate 0.5 times more return on investment than Mercury Systems. However, Elbit Systems is 2.01 times less risky than Mercury Systems. It trades about 0.19 of its potential returns per unit of risk. Mercury Systems is currently generating about 0.04 per unit of risk. If you would invest  20,025  in Elbit Systems on September 4, 2024 and sell it today you would earn a total of  4,463  from holding Elbit Systems or generate 22.29% return on investment over 90 days.

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

Elbit Systems  vs.  Mercury Systems

Elbit Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Systems are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Elbit Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Mercury Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Mercury Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Elbit Systems and Mercury Systems

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

The idea behind Elbit Systems and Mercury Systems 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.