Correlation Between Mercury Systems and GE Aerospace

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

Diversification Opportunities for Mercury Systems and GE Aerospace

-0.1

Correlation Coefficient

Mercury Systems  GE Aerospace

Good diversification

The 3 months correlation between Mercury and GE Aerospace is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Mercury Systems and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Mercury Systems i.e., Mercury Systems and GE Aerospace go up and down completely randomly.

Pair Corralation between Mercury Systems and GE Aerospace

Given the investment horizon of 90 days Mercury Systems is expected to generate 0.97 times more return on investment than GE Aerospace. However, Mercury Systems is 1.03 times less risky than GE Aerospace. It trades about -0.03 of its potential returns per unit of risk. GE Aerospace is currently generating about -0.14 per unit of risk. If you would invest  4,094  in Mercury Systems on September 24, 2024 and sell it today you would lose (64.00) from holding Mercury Systems or give up 1.56% of portfolio value over 90 days.

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

Mercury Systems  vs.  GE Aerospace

Mercury Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Mercury Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

GE Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GE Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Mercury Systems and GE Aerospace

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

The idea behind Mercury Systems and GE 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.