Correlation Between Enpro Industries and Melrose Industries

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Can any of the company-specific risk be diversified away by investing in both Enpro Industries and Melrose Industries 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 Enpro Industries and Melrose Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Enpro Industries and Melrose Industries PLC, you can compare the effects of market volatilities on Enpro Industries and Melrose Industries 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 Enpro Industries with a short position of Melrose Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enpro Industries and Melrose Industries.

Diversification Opportunities for Enpro Industries and Melrose Industries

EnproMelroseDiversified AwayEnproMelroseDiversified Away100%
0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Enpro and Melrose is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Enpro Industries and Melrose Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melrose Industries PLC and Enpro Industries 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 Enpro Industries are associated (or correlated) with Melrose Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melrose Industries PLC has no effect on the direction of Enpro Industries i.e., Enpro Industries and Melrose Industries go up and down completely randomly.

Pair Corralation between Enpro Industries and Melrose Industries

Considering the 90-day investment horizon Enpro Industries is expected to generate 1.43 times less return on investment than Melrose Industries. But when comparing it to its historical volatility, Enpro Industries is 2.41 times less risky than Melrose Industries. It trades about 0.14 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  696.00  in Melrose Industries PLC on November 18, 2024 and sell it today you would earn a total of  109.00  from holding Melrose Industries PLC or generate 15.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy98.36%
ValuesDaily Returns

Enpro Industries  vs.  Melrose Industries PLC

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb 05101520
JavaScript chart by amCharts 3.21.15NPO MLSPF
       Timeline  
Enpro Industries 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Enpro Industries are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Enpro Industries displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb160165170175180185190195
Melrose Industries PLC 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb6.577.58

Enpro Industries and Melrose Industries Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.99-3.74-2.49-1.230.01.362.724.085.45 0.020.040.060.080.100.120.14
JavaScript chart by amCharts 3.21.15NPO MLSPF
       Returns  

Pair Trading with Enpro Industries and Melrose Industries

The main advantage of trading using opposite Enpro Industries and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enpro Industries position performs unexpectedly, Melrose Industries 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 Melrose Industries will offset losses from the drop in Melrose Industries' long position.
The idea behind Enpro Industries and Melrose Industries PLC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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