Correlation Between Park Electrochemical and Mercury Systems

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

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

Diversification Opportunities for Park Electrochemical and Mercury Systems

-0.28

Correlation Coefficient

Park Electrochemical  Mercury Systems

Very good diversification

The 3 months correlation between Park and Mercury is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Park Electrochemical 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 Park Electrochemical are associated (or correlated) with Mercury Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercury Systems has no effect on the direction of Park Electrochemical i.e., Park Electrochemical and Mercury Systems go up and down completely randomly.

Pair Corralation between Park Electrochemical and Mercury Systems

Considering the 90-day investment horizon Park Electrochemical is expected to under-perform the Mercury Systems. But the stock apears to be less risky and, when comparing its historical volatility, Park Electrochemical is 1.77 times less risky than Mercury Systems. The stock trades about -0.02 of its potential returns per unit of risk. The Mercury Systems is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,897  in Mercury Systems on November 19, 2024 and sell it today you would earn a total of  548.00  from holding Mercury Systems or generate 14.06% return on investment over 90 days.

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

Park Electrochemical  vs.  Mercury Systems

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Park Electrochemical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mercury Systems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 6 (%) 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.

Pair Trading with Park Electrochemical and Mercury Systems

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

The idea behind Park Electrochemical and Mercury Systems 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..