Correlation Between Melrose Industries and Grupo Simec

Can any of the company-specific risk be diversified away by investing in both Melrose Industries and Grupo Simec 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 Grupo Simec 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 Grupo Simec SAB, you can compare the effects of market volatilities on Melrose Industries and Grupo Simec 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 Grupo Simec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Melrose Industries and Grupo Simec.

Diversification Opportunities for Melrose Industries and Grupo Simec

-0.5

Correlation Coefficient

Melrose Industries  Grupo Simec

Very good diversification

The 3 months correlation between Melrose and Grupo is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Melrose Industries PLC and Grupo Simec SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Simec SAB 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 Grupo Simec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Simec SAB has no effect on the direction of Melrose Industries i.e., Melrose Industries and Grupo Simec go up and down completely randomly.

Pair Corralation between Melrose Industries and Grupo Simec

Assuming the 90 days horizon Melrose Industries PLC is expected to under-perform the Grupo Simec. In addition to that, Melrose Industries is 1.79 times more volatile than Grupo Simec SAB. It trades about -0.08 of its total potential returns per unit of risk. Grupo Simec SAB is currently generating about 0.03 per unit of volatility. If you would invest  2,689  in Grupo Simec SAB on October 4, 2024 and sell it today you would earn a total of  26.00  from holding Grupo Simec SAB or generate 0.97% return on investment over 90 days.

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

Melrose Industries PLC  vs.  Grupo Simec SAB

Melrose Industries PLC

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Grupo Simec SAB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Melrose Industries and Grupo Simec

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

The idea behind Melrose Industries PLC and Grupo Simec SAB 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 Commodity Directory module to find actively traded commodities issued by global exchanges.