Correlation Between Mercury General and Lemonade

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

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

Diversification Opportunities for Mercury General and Lemonade

0.72

Correlation Coefficient

Mercury General  Lemonade

Poor diversification

The 3 months correlation between Mercury and Lemonade is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Mercury General and Lemonade in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lemonade and Mercury General 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 Mercury General are associated (or correlated) with Lemonade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lemonade has no effect on the direction of Mercury General i.e., Mercury General and Lemonade go up and down completely randomly.

Pair Corralation between Mercury General and Lemonade

Considering the 90-day investment horizon Mercury General is expected to under-perform the Lemonade. But the stock apears to be less risky and, when comparing its historical volatility, Mercury General is 1.32 times less risky than Lemonade. The stock trades about -0.05 of its potential returns per unit of risk. The Lemonade is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,827  in Lemonade on December 29, 2024 and sell it today you would lose (448.00) from holding Lemonade or give up 11.71% of portfolio value over 90 days.

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

Mercury General  vs.  Lemonade

Mercury General

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mercury General has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Lemonade

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Mercury General and Lemonade

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

The idea behind Mercury General and Lemonade 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.