Correlation Between Aeorema Communications and Mercantile Investment

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

By analyzing existing cross correlation between Aeorema Communications Plc and The Mercantile Investment, you can compare the effects of market volatilities on Aeorema Communications and Mercantile Investment 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 Aeorema Communications with a short position of Mercantile Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and Mercantile Investment.

Diversification Opportunities for Aeorema Communications and Mercantile Investment

0.64

Correlation Coefficient

Aeorema Communications  Mercantile Investment

Poor diversification

The 3 months correlation between Aeorema and Mercantile is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and The Mercantile Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Mercantile Investment and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with Mercantile Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Mercantile Investment has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and Mercantile Investment go up and down completely randomly.

Pair Corralation between Aeorema Communications and Mercantile Investment

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to generate 3.38 times more return on investment than Mercantile Investment. However, Aeorema Communications is 3.38 times more volatile than The Mercantile Investment. It trades about 0.21 of its potential returns per unit of risk. The Mercantile Investment is currently generating about 0.18 per unit of risk. If you would invest  4,300  in Aeorema Communications Plc on April 25, 2025 and sell it today you would earn a total of  1,750  from holding Aeorema Communications Plc or generate 40.7% return on investment over 90 days.

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

Aeorema Communications Plc  vs.  The Mercantile Investment

Aeorema Communications

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aeorema Communications Plc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Aeorema Communications exhibited solid returns over the last few months and may actually be approaching a breakup point.

The Mercantile Investment

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Mercantile Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Mercantile Investment may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Aeorema Communications and Mercantile Investment

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

The idea behind Aeorema Communications Plc and The Mercantile Investment 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.