Correlation Between Mercury Systems and Howmet Aerospace

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

Diversification Opportunities for Mercury Systems and Howmet Aerospace

0.41

Correlation Coefficient

Mercury Systems  Howmet Aerospace

Very weak diversification

The 3 months correlation between Mercury and Howmet is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Mercury Systems and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet 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 Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Mercury Systems i.e., Mercury Systems and Howmet Aerospace go up and down completely randomly.

Pair Corralation between Mercury Systems and Howmet Aerospace

Given the investment horizon of 90 days Mercury Systems is expected to generate 2.62 times less return on investment than Howmet Aerospace. In addition to that, Mercury Systems is 1.49 times more volatile than Howmet Aerospace. It trades about 0.03 of its total potential returns per unit of risk. Howmet Aerospace is currently generating about 0.13 per unit of volatility. If you would invest  11,019  in Howmet Aerospace on December 29, 2024 and sell it today you would earn a total of  1,950  from holding Howmet Aerospace or generate 17.7% 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.  Howmet Aerospace

Mercury Systems

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Mercury Systems may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Howmet Aerospace

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Howmet Aerospace displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercury Systems and Howmet Aerospace

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

The idea behind Mercury Systems and Howmet 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.