Correlation Between AeroVironment and Mercury Systems

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

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

Diversification Opportunities for AeroVironment and Mercury Systems

0.65

Correlation Coefficient

AeroVironment  Mercury Systems

Poor diversification

The 3 months correlation between AeroVironment and Mercury is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and AeroVironment 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 AeroVironment 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 AeroVironment i.e., AeroVironment and Mercury Systems go up and down completely randomly.

Pair Corralation between AeroVironment and Mercury Systems

Given the investment horizon of 90 days AeroVironment is expected to generate 1.4 times more return on investment than Mercury Systems. However, AeroVironment is 1.4 times more volatile than Mercury Systems. It trades about 0.15 of its potential returns per unit of risk. Mercury Systems is currently generating about 0.1 per unit of risk. If you would invest  13,569  in AeroVironment on March 5, 2025 and sell it today you would earn a total of  4,472  from holding AeroVironment or generate 32.96% return on investment over 90 days.

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

AeroVironment  vs.  Mercury Systems

AeroVironment

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, AeroVironment showed solid returns over the last few months and may actually be approaching a breakup point.

Mercury Systems

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mercury Systems are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, Mercury Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AeroVironment and Mercury Systems

The main advantage of trading using opposite AeroVironment and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AeroVironment 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 AeroVironment 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.