Correlation Between Mercury Systems and Axon Enterprise

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

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

Diversification Opportunities for Mercury Systems and Axon Enterprise

0.65

Correlation Coefficient

Mercury Systems  Axon Enterprise

Poor diversification

The 3 months correlation between Mercury and Axon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Mercury Systems and Axon Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axon Enterprise and Mercury Systems 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 Mercury Systems are associated (or correlated) with Axon Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axon Enterprise has no effect on the direction of Mercury Systems i.e., Mercury Systems and Axon Enterprise go up and down completely randomly.

Pair Corralation between Mercury Systems and Axon Enterprise

Given the investment horizon of 90 days Mercury Systems is expected to generate 5.85 times less return on investment than Axon Enterprise. But when comparing it to its historical volatility, Mercury Systems is 1.12 times less risky than Axon Enterprise. It trades about 0.05 of its potential returns per unit of risk. Axon Enterprise is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  35,516  in Axon Enterprise on September 3, 2024 and sell it today you would earn a total of  28,123  from holding Axon Enterprise or generate 79.18% return on investment over 90 days.

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

Mercury Systems  vs.  Axon Enterprise

Mercury Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Mercury Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Axon Enterprise

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Axon Enterprise are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Axon Enterprise displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mercury Systems and Axon Enterprise

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

The idea behind Mercury Systems and Axon Enterprise 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.