Correlation Between Thomas Scott and MIRC Electronics

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

By analyzing existing cross correlation between Thomas Scott Limited and MIRC Electronics Limited, you can compare the effects of market volatilities on Thomas Scott and MIRC Electronics 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 Thomas Scott with a short position of MIRC Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thomas Scott and MIRC Electronics.

Diversification Opportunities for Thomas Scott and MIRC Electronics

0.67

Correlation Coefficient

Thomas Scott  MIRC Electronics

Poor diversification

The 3 months correlation between Thomas and MIRC is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Thomas Scott Limited and MIRC Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MIRC Electronics and Thomas Scott 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 Thomas Scott Limited are associated (or correlated) with MIRC Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MIRC Electronics has no effect on the direction of Thomas Scott i.e., Thomas Scott and MIRC Electronics go up and down completely randomly.

Pair Corralation between Thomas Scott and MIRC Electronics

Assuming the 90 days trading horizon Thomas Scott Limited is expected to generate 0.74 times more return on investment than MIRC Electronics. However, Thomas Scott Limited is 1.36 times less risky than MIRC Electronics. It trades about 0.11 of its potential returns per unit of risk. MIRC Electronics Limited is currently generating about 0.06 per unit of risk. If you would invest  24,575  in Thomas Scott Limited on October 9, 2024 and sell it today you would earn a total of  22,435  from holding Thomas Scott Limited or generate 91.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.77%
Values	Daily Returns

Thomas Scott Limited  vs.  MIRC Electronics Limited

Thomas Scott Limited

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Thomas Scott Limited are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Thomas Scott exhibited solid returns over the last few months and may actually be approaching a breakup point.

MIRC Electronics

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Thomas Scott and MIRC Electronics

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

The idea behind Thomas Scott Limited and MIRC Electronics Limited 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..