Correlation Between Shionogi and Melrose Industries

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

By analyzing existing cross correlation between Shionogi Co and Melrose Industries PLC, you can compare the effects of market volatilities on Shionogi 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 Shionogi with a short position of Melrose Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shionogi and Melrose Industries.

Diversification Opportunities for Shionogi and Melrose Industries

-0.37

Correlation Coefficient

Shionogi  Melrose Industries

Very good diversification

The 3 months correlation between Shionogi and Melrose is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Shionogi Co 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 Shionogi 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 Shionogi Co 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 Shionogi i.e., Shionogi and Melrose Industries go up and down completely randomly.

Pair Corralation between Shionogi and Melrose Industries

Assuming the 90 days horizon Shionogi Co is expected to generate 6.6 times more return on investment than Melrose Industries. However, Shionogi is 6.6 times more volatile than Melrose Industries PLC. It trades about 0.08 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.06 per unit of risk. If you would invest  1,497  in Shionogi Co on September 26, 2024 and sell it today you would lose (80.00) from holding Shionogi Co or give up 5.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Shionogi Co  vs.  Melrose Industries PLC

Shionogi

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shionogi Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Shionogi reported solid returns over the last few months and may actually be approaching a breakup point.

Melrose Industries PLC

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shionogi and Melrose Industries

The main advantage of trading using opposite Shionogi and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shionogi 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 Shionogi Co 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.