Correlation Between Mercator Medical and Dom Development

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

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

Diversification Opportunities for Mercator Medical and Dom Development

-0.24

Correlation Coefficient

Mercator Medical  Dom Development

Very good diversification

The 3 months correlation between Mercator and Dom is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Mercator Medical SA and Dom Development SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dom Development SA and Mercator Medical 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 Mercator Medical SA are associated (or correlated) with Dom Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dom Development SA has no effect on the direction of Mercator Medical i.e., Mercator Medical and Dom Development go up and down completely randomly.

Pair Corralation between Mercator Medical and Dom Development

Assuming the 90 days trading horizon Mercator Medical is expected to generate 7.03 times less return on investment than Dom Development. In addition to that, Mercator Medical is 1.14 times more volatile than Dom Development SA. It trades about 0.02 of its total potential returns per unit of risk. Dom Development SA is currently generating about 0.14 per unit of volatility. If you would invest  18,820  in Dom Development SA on December 22, 2024 and sell it today you would earn a total of  3,180  from holding Dom Development SA or generate 16.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Mercator Medical SA  vs.  Dom Development SA

Mercator Medical

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mercator Medical SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Mercator Medical is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Dom Development SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dom Development SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Dom Development reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercator Medical and Dom Development

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

The idea behind Mercator Medical SA and Dom Development SA 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.