Correlation Between Safe and Melrose Industries

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

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

Diversification Opportunities for Safe and Melrose Industries

-0.36

Correlation Coefficient

Safe  Melrose Industries

Very good diversification

The 3 months correlation between Safe and Melrose is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Safe and Green 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 Safe 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 Safe and Green 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 Safe i.e., Safe and Melrose Industries go up and down completely randomly.

Pair Corralation between Safe and Melrose Industries

Considering the 90-day investment horizon Safe and Green is expected to under-perform the Melrose Industries. In addition to that, Safe is 2.41 times more volatile than Melrose Industries PLC. It trades about -0.13 of its total potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.26 per unit of volatility. If you would invest  623.00  in Melrose Industries PLC on September 4, 2024 and sell it today you would earn a total of  150.00  from holding Melrose Industries PLC or generate 24.08% return on investment over 90 days.

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

Safe and Green  vs.  Melrose Industries PLC

Safe and Green

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Safe and Green has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Melrose Industries PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Safe and Melrose Industries

The main advantage of trading using opposite Safe and Melrose Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Safe 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 Safe and Green 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.