Correlation Between Willamette Valley and Melrose Industries

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

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

Diversification Opportunities for Willamette Valley and Melrose Industries

0.13

Correlation Coefficient

Willamette Valley  Melrose Industries

Average diversification

The 3 months correlation between Willamette and Melrose is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Willamette Valley Vineyards 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 Willamette Valley 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 Willamette Valley Vineyards 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 Willamette Valley i.e., Willamette Valley and Melrose Industries go up and down completely randomly.

Pair Corralation between Willamette Valley and Melrose Industries

Assuming the 90 days horizon Willamette Valley is expected to generate 3.14 times less return on investment than Melrose Industries. But when comparing it to its historical volatility, Willamette Valley Vineyards is 2.71 times less risky than Melrose Industries. It trades about 0.01 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  681.00  in Melrose Industries PLC on December 24, 2024 and sell it today you would lose (33.00) from holding Melrose Industries PLC or give up 4.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Willamette Valley Vineyards  vs.  Melrose Industries PLC

Willamette Valley

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Willamette Valley Vineyards are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Willamette Valley is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Melrose Industries PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Melrose Industries is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Willamette Valley and Melrose Industries

The main advantage of trading using opposite Willamette Valley and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Willamette Valley 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 Willamette Valley Vineyards 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.