Correlation Between Vertical Aerospace and Mercury Systems

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

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

Diversification Opportunities for Vertical Aerospace and Mercury Systems

0.44

Correlation Coefficient

Vertical Aerospace  Mercury Systems

Very weak diversification

The 3 months correlation between Vertical and Mercury is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Vertical Aerospace and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Vertical Aerospace 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 Vertical Aerospace 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 Vertical Aerospace i.e., Vertical Aerospace and Mercury Systems go up and down completely randomly.

Pair Corralation between Vertical Aerospace and Mercury Systems

Given the investment horizon of 90 days Vertical Aerospace is expected to generate 2.65 times more return on investment than Mercury Systems. However, Vertical Aerospace is 2.65 times more volatile than Mercury Systems. It trades about 0.05 of its potential returns per unit of risk. Mercury Systems is currently generating about 0.09 per unit of risk. If you would invest  750.00  in Vertical Aerospace on October 12, 2024 and sell it today you would earn a total of  201.00  from holding Vertical Aerospace or generate 26.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.47%
Values	Daily Returns

Vertical Aerospace  vs.  Mercury Systems

Vertical Aerospace

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Vertical Aerospace disclosed solid returns over the last few months and may actually be approaching a breakup point.

Mercury Systems

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Mercury Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vertical Aerospace and Mercury Systems

The main advantage of trading using opposite Vertical Aerospace and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vertical Aerospace 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 Vertical Aerospace 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.

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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 Stocks Directory module to find actively traded stocks across global markets.