Correlation Between Kaman and Mercury Systems

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

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

Diversification Opportunities for Kaman and Mercury Systems

-0.36

Correlation Coefficient

Kaman  Mercury Systems

Very good diversification

The 3 months correlation between Kaman and Mercury is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Kaman and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and Kaman 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 Kaman 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 Kaman i.e., Kaman and Mercury Systems go up and down completely randomly.

Pair Corralation between Kaman and Mercury Systems

Given the investment horizon of 90 days Kaman is expected to generate 3.95 times less return on investment than Mercury Systems. But when comparing it to its historical volatility, Kaman is 23.31 times less risky than Mercury Systems. It trades about 0.33 of its potential returns per unit of risk. Mercury Systems is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,811  in Mercury Systems on February 2, 2024 and sell it today you would earn a total of  55.00  from holding Mercury Systems or generate 1.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	63.64%
Values	Daily Returns

Kaman  vs.  Mercury Systems

Kaman

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Kaman has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Kaman is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Mercury Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercury Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Mercury Systems is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Kaman and Mercury Systems

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