Correlation Between Moog and Mercury Systems

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

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

Diversification Opportunities for Moog and Mercury Systems

0.59

Correlation Coefficient

Moog  Mercury Systems

Very weak diversification

The 3 months correlation between Moog and Mercury is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Moog Inc and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Moog 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 Moog Inc 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 Moog i.e., Moog and Mercury Systems go up and down completely randomly.

Pair Corralation between Moog and Mercury Systems

Assuming the 90 days horizon Moog Inc is expected to under-perform the Mercury Systems. But the preferred stock apears to be less risky and, when comparing its historical volatility, Moog Inc is 2.45 times less risky than Mercury Systems. The preferred stock trades about -0.12 of its potential returns per unit of risk. The Mercury Systems is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,873  in Mercury Systems on September 19, 2024 and sell it today you would lose (49.00) from holding Mercury Systems or give up 1.27% of portfolio value over 90 days.

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

Moog Inc  vs.  Mercury Systems

Moog Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Moog Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Moog sustained solid returns over the last few months and may actually be approaching a breakup point.

Mercury Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 3 (%) 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 January 2025.

Pair Trading with Moog and Mercury Systems

The main advantage of trading using opposite Moog and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moog 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 Moog Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.