Correlation Between Woodward and Mercury Systems

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

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

Diversification Opportunities for Woodward and Mercury Systems

0.59

Correlation Coefficient

Woodward  Mercury Systems

Very weak diversification

The 3 months correlation between Woodward and Mercury is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Woodward and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Woodward 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 Woodward 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 Woodward i.e., Woodward and Mercury Systems go up and down completely randomly.

Pair Corralation between Woodward and Mercury Systems

Considering the 90-day investment horizon Woodward is expected to generate 0.52 times more return on investment than Mercury Systems. However, Woodward is 1.92 times less risky than Mercury Systems. It trades about 0.09 of its potential returns per unit of risk. Mercury Systems is currently generating about 0.03 per unit of risk. If you would invest  16,788  in Woodward on December 29, 2024 and sell it today you would earn a total of  1,541  from holding Woodward or generate 9.18% return on investment over 90 days.

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

Woodward  vs.  Mercury Systems

Woodward

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Woodward are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Woodward may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Mercury Systems

Risk-Adjusted Performance

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 April 2025.

Pair Trading with Woodward and Mercury Systems

The main advantage of trading using opposite Woodward and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woodward 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 Woodward 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.