Correlation Between Hexcel and Mercury Systems

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

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

Diversification Opportunities for Hexcel and Mercury Systems

0.04

Correlation Coefficient

Hexcel  Mercury Systems

Significant diversification

The 3 months correlation between Hexcel and Mercury is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Hexcel 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 Hexcel 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 Hexcel i.e., Hexcel and Mercury Systems go up and down completely randomly.

Pair Corralation between Hexcel and Mercury Systems

Considering the 90-day investment horizon Hexcel is expected to generate 903.0 times less return on investment than Mercury Systems. But when comparing it to its historical volatility, Hexcel is 2.24 times less risky than Mercury Systems. It trades about 0.0 of its potential returns per unit of risk. Mercury Systems is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,790  in Mercury Systems on August 30, 2024 and sell it today you would earn a total of  315.00  from holding Mercury Systems or generate 8.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Hexcel  vs.  Mercury Systems

Hexcel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hexcel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Mercury Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Mercury Systems may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Hexcel and Mercury Systems

The main advantage of trading using opposite Hexcel and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hexcel 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 Hexcel 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.