Correlation Between Mercator Medical and Tower Investments

Can any of the company-specific risk be diversified away by investing in both Mercator Medical and Tower Investments 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 Tower Investments 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 Tower Investments SA, you can compare the effects of market volatilities on Mercator Medical and Tower Investments 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 Tower Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercator Medical and Tower Investments.

Diversification Opportunities for Mercator Medical and Tower Investments

-0.01

Correlation Coefficient

Mercator Medical  Tower Investments

Good diversification

The 3 months correlation between Mercator and Tower is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Mercator Medical SA and Tower Investments SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Investments 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 Tower Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Investments has no effect on the direction of Mercator Medical i.e., Mercator Medical and Tower Investments go up and down completely randomly.

Pair Corralation between Mercator Medical and Tower Investments

Assuming the 90 days trading horizon Mercator Medical SA is expected to under-perform the Tower Investments. But the stock apears to be less risky and, when comparing its historical volatility, Mercator Medical SA is 2.75 times less risky than Tower Investments. The stock trades about -0.01 of its potential returns per unit of risk. The Tower Investments SA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  262.00  in Tower Investments SA on December 28, 2024 and sell it today you would lose (14.00) from holding Tower Investments SA or give up 5.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Mercator Medical SA  vs.  Tower Investments SA

Mercator Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mercator Medical SA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Tower Investments

Risk-Adjusted Performance

Weak

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

Pair Trading with Mercator Medical and Tower Investments

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

The idea behind Mercator Medical SA and Tower Investments 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.