Correlation Between Textron and Mercury Systems

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

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

Diversification Opportunities for Textron and Mercury Systems

0.22

Correlation Coefficient

Textron  Mercury Systems

Modest diversification

The 3 months correlation between Textron and Mercury is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Textron 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 Textron 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 Textron i.e., Textron and Mercury Systems go up and down completely randomly.

Pair Corralation between Textron and Mercury Systems

Considering the 90-day investment horizon Textron is expected to under-perform the Mercury Systems. But the stock apears to be less risky and, when comparing its historical volatility, Textron is 2.18 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 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,758  in Mercury Systems on September 5, 2024 and sell it today you would earn a total of  156.00  from holding Mercury Systems or generate 4.15% return on investment over 90 days.

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

Textron  vs.  Mercury Systems

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Textron is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Mercury Systems

Risk-Adjusted Performance

2 of 100

Weak

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

Pair Trading with Textron and Mercury Systems

The main advantage of trading using opposite Textron and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron 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 Textron 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 Global Correlations module to find global opportunities by holding instruments from different markets.