Correlation Between Mercury Systems and Vertical Aerospace

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

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

Diversification Opportunities for Mercury Systems and Vertical Aerospace

0.43

Correlation Coefficient

Mercury Systems  Vertical Aerospace

Very weak diversification

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

Pair Corralation between Mercury Systems and Vertical Aerospace

Given the investment horizon of 90 days Mercury Systems is expected to generate 0.1 times more return on investment than Vertical Aerospace. However, Mercury Systems is 9.83 times less risky than Vertical Aerospace. It trades about 0.06 of its potential returns per unit of risk. Vertical Aerospace is currently generating about -0.15 per unit of risk. If you would invest  4,199  in Mercury Systems on October 27, 2024 and sell it today you would earn a total of  72.00  from holding Mercury Systems or generate 1.71% return on investment over 90 days.

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

Mercury Systems  vs.  Vertical Aerospace

Mercury Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Mercury Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Vertical Aerospace

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Vertical Aerospace disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercury Systems and Vertical Aerospace

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

The idea behind Mercury Systems and Vertical Aerospace 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.