Correlation Between Melrose Industries and Laser Photonics

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

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

Diversification Opportunities for Melrose Industries and Laser Photonics

-0.37

Correlation Coefficient

Melrose Industries  Laser Photonics

Very good diversification

The 3 months correlation between Melrose and Laser is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Melrose Industries PLC and Laser Photonics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laser Photonics and Melrose Industries 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 Melrose Industries PLC are associated (or correlated) with Laser Photonics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laser Photonics has no effect on the direction of Melrose Industries i.e., Melrose Industries and Laser Photonics go up and down completely randomly.

Pair Corralation between Melrose Industries and Laser Photonics

Assuming the 90 days horizon Melrose Industries PLC is expected to generate 0.83 times more return on investment than Laser Photonics. However, Melrose Industries PLC is 1.21 times less risky than Laser Photonics. It trades about 0.09 of its potential returns per unit of risk. Laser Photonics is currently generating about 0.06 per unit of risk. If you would invest  600.00  in Melrose Industries PLC on September 26, 2024 and sell it today you would earn a total of  81.00  from holding Melrose Industries PLC or generate 13.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.62%
Values	Daily Returns

Melrose Industries PLC  vs.  Laser Photonics

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.

Laser Photonics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Laser Photonics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Melrose Industries and Laser Photonics

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

The idea behind Melrose Industries PLC and Laser Photonics 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.