Correlation Between GBX International and Melrose Industries

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

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

Diversification Opportunities for GBX International and Melrose Industries

0.65

Correlation Coefficient

GBX International  Melrose Industries

Poor diversification

The 3 months correlation between GBX and Melrose is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding GBX International 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 GBX International 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 GBX International 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 GBX International i.e., GBX International and Melrose Industries go up and down completely randomly.

Pair Corralation between GBX International and Melrose Industries

Given the investment horizon of 90 days GBX International Group is expected to generate 4.07 times more return on investment than Melrose Industries. However, GBX International is 4.07 times more volatile than Melrose Industries PLC. It trades about 0.1 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.02 per unit of risk. If you would invest  0.01  in GBX International Group on September 26, 2024 and sell it today you would earn a total of  0.01  from holding GBX International Group or generate 100.0% return on investment over 90 days.

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

GBX International Group  vs.  Melrose Industries PLC

GBX International

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GBX International Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, GBX International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Melrose Industries PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GBX International and Melrose Industries

The main advantage of trading using opposite GBX International and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GBX International 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 GBX International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.