Correlation Between Gestamp Automocion and Merlin Properties

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

By analyzing existing cross correlation between Gestamp Automocion SA and Merlin Properties SOCIMI, you can compare the effects of market volatilities on Gestamp Automocion and Merlin Properties 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 Gestamp Automocion with a short position of Merlin Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gestamp Automocion and Merlin Properties.

Diversification Opportunities for Gestamp Automocion and Merlin Properties

0.6

Correlation Coefficient

Gestamp Automocion  Merlin Properties

Poor diversification

The 3 months correlation between Gestamp and Merlin is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Gestamp Automocion SA and Merlin Properties SOCIMI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merlin Properties SOCIMI and Gestamp Automocion 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 Gestamp Automocion SA are associated (or correlated) with Merlin Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merlin Properties SOCIMI has no effect on the direction of Gestamp Automocion i.e., Gestamp Automocion and Merlin Properties go up and down completely randomly.

Pair Corralation between Gestamp Automocion and Merlin Properties

Assuming the 90 days trading horizon Gestamp Automocion SA is expected to generate 1.86 times more return on investment than Merlin Properties. However, Gestamp Automocion is 1.86 times more volatile than Merlin Properties SOCIMI. It trades about 0.2 of its potential returns per unit of risk. Merlin Properties SOCIMI is currently generating about -0.27 per unit of risk. If you would invest  260.00  in Gestamp Automocion SA on December 4, 2024 and sell it today you would earn a total of  26.00  from holding Gestamp Automocion SA or generate 10.0% return on investment over 90 days.

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

Gestamp Automocion SA  vs.  Merlin Properties SOCIMI

Gestamp Automocion

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gestamp Automocion SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Gestamp Automocion exhibited solid returns over the last few months and may actually be approaching a breakup point.

Merlin Properties SOCIMI

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merlin Properties SOCIMI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Merlin Properties is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Gestamp Automocion and Merlin Properties

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

The idea behind Gestamp Automocion SA and Merlin Properties SOCIMI 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.