Correlation Between Lipocine and Melrose Industries

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

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

Diversification Opportunities for Lipocine and Melrose Industries

-0.42

Correlation Coefficient

Lipocine  Melrose Industries

Very good diversification

The 3 months correlation between Lipocine and Melrose is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Lipocine 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 Lipocine 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 Lipocine 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 Lipocine i.e., Lipocine and Melrose Industries go up and down completely randomly.

Pair Corralation between Lipocine and Melrose Industries

Given the investment horizon of 90 days Lipocine is expected to under-perform the Melrose Industries. But the stock apears to be less risky and, when comparing its historical volatility, Lipocine is 1.01 times less risky than Melrose Industries. The stock trades about -0.02 of its potential returns per unit of risk. The Melrose Industries PLC is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  706.00  in Melrose Industries PLC on October 9, 2024 and sell it today you would lose (16.00) from holding Melrose Industries PLC or give up 2.27% of portfolio value over 90 days.

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

Lipocine  vs.  Melrose Industries PLC

Lipocine

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lipocine has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Lipocine is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Melrose Industries PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lipocine and Melrose Industries

The main advantage of trading using opposite Lipocine and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lipocine 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 Lipocine 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.