Correlation Between Melcor Developments and Hammond Manufacturing

Can any of the company-specific risk be diversified away by investing in both Melcor Developments and Hammond Manufacturing 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 Melcor Developments and Hammond Manufacturing into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Melcor Developments and Hammond Manufacturing

0.47

Correlation Coefficient

Melcor Developments  Hammond Manufacturing

Very weak diversification

The 3 months correlation between Melcor and Hammond is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Melcor Developments and Hammond Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Manufacturing and Melcor Developments 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 Melcor Developments are associated (or correlated) with Hammond Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Manufacturing has no effect on the direction of Melcor Developments i.e., Melcor Developments and Hammond Manufacturing go up and down completely randomly.

Pair Corralation between Melcor Developments and Hammond Manufacturing

Assuming the 90 days trading horizon Melcor Developments is expected to generate 1.28 times less return on investment than Hammond Manufacturing. But when comparing it to its historical volatility, Melcor Developments is 2.21 times less risky than Hammond Manufacturing. It trades about 0.15 of its potential returns per unit of risk. Hammond Manufacturing is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  943.00  in Hammond Manufacturing on September 3, 2024 and sell it today you would earn a total of  102.00  from holding Hammond Manufacturing or generate 10.82% return on investment over 90 days.

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

Melcor Developments  vs.  Hammond Manufacturing

Melcor Developments

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Melcor Developments are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Melcor Developments may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hammond Manufacturing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hammond Manufacturing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Hammond Manufacturing may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Melcor Developments and Hammond Manufacturing

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

The idea behind Melcor Developments and Hammond Manufacturing 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.