Correlation Between Mechanics Bank and Burberry Group

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

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

Diversification Opportunities for Mechanics Bank and Burberry Group

-0.67

Correlation Coefficient

Mechanics Bank  Burberry Group

Excellent diversification

The 3 months correlation between Mechanics and Burberry is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Mechanics Bank and Burberry Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burberry Group Plc and Mechanics Bank 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 Mechanics Bank are associated (or correlated) with Burberry Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burberry Group Plc has no effect on the direction of Mechanics Bank i.e., Mechanics Bank and Burberry Group go up and down completely randomly.

Pair Corralation between Mechanics Bank and Burberry Group

Given the investment horizon of 90 days Mechanics Bank is expected to generate 0.22 times more return on investment than Burberry Group. However, Mechanics Bank is 4.58 times less risky than Burberry Group. It trades about 0.22 of its potential returns per unit of risk. Burberry Group Plc is currently generating about -0.16 per unit of risk. If you would invest  2,500,000  in Mechanics Bank on February 23, 2024 and sell it today you would earn a total of  100,000  from holding Mechanics Bank or generate 4.0% return on investment over 90 days.

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

Mechanics Bank  vs.  Burberry Group Plc

Mechanics Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mechanics Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Mechanics Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Burberry Group Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Burberry Group Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Mechanics Bank and Burberry Group

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

The idea behind Mechanics Bank and Burberry Group 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.