Correlation Between Micropac Industries and Surge Components

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

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

Diversification Opportunities for Micropac Industries and Surge Components

-0.43

Correlation Coefficient

Micropac Industries  Surge Components

Very good diversification

The 3 months correlation between Micropac and Surge is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Micropac Industries and Surge Components in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Surge Components and Micropac 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 Micropac Industries are associated (or correlated) with Surge Components. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Surge Components has no effect on the direction of Micropac Industries i.e., Micropac Industries and Surge Components go up and down completely randomly.

Pair Corralation between Micropac Industries and Surge Components

Given the investment horizon of 90 days Micropac Industries is expected to generate 0.07 times more return on investment than Surge Components. However, Micropac Industries is 13.38 times less risky than Surge Components. It trades about 0.15 of its potential returns per unit of risk. Surge Components is currently generating about -0.06 per unit of risk. If you would invest  1,974  in Micropac Industries on October 6, 2024 and sell it today you would earn a total of  23.00  from holding Micropac Industries or generate 1.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.12%
Values	Daily Returns

Micropac Industries  vs.  Surge Components

Micropac Industries

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Micropac Industries are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Micropac Industries exhibited solid returns over the last few months and may actually be approaching a breakup point.

Surge Components

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Surge Components has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Surge Components is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Micropac Industries and Surge Components

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

The idea behind Micropac Industries and Surge Components 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.