Correlation Between Derwent London and Howden Joinery
Can any of the company-specific risk be diversified away by investing in both Derwent London and Howden Joinery 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 Derwent London and Howden Joinery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Derwent London PLC and Howden Joinery Group, you can compare the effects of market volatilities on Derwent London and Howden Joinery 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 Derwent London with a short position of Howden Joinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Derwent London and Howden Joinery.
Diversification Opportunities for Derwent London and Howden Joinery
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Derwent and Howden is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Howden Joinery Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howden Joinery Group and Derwent London 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 Derwent London PLC are associated (or correlated) with Howden Joinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howden Joinery Group has no effect on the direction of Derwent London i.e., Derwent London and Howden Joinery go up and down completely randomly.
Pair Corralation between Derwent London and Howden Joinery
Assuming the 90 days trading horizon Derwent London PLC is expected to generate 0.99 times more return on investment than Howden Joinery. However, Derwent London PLC is 1.01 times less risky than Howden Joinery. It trades about -0.19 of its potential returns per unit of risk. Howden Joinery Group is currently generating about -0.28 per unit of risk. If you would invest 224,000 in Derwent London PLC on August 29, 2024 and sell it today you would lose (15,200) from holding Derwent London PLC or give up 6.79% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Derwent London PLC vs. Howden Joinery Group
Performance |
| Timeline |
| Derwent London PLC |
| Howden Joinery Group |
Derwent London and Howden Joinery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Derwent London and Howden Joinery
The main advantage of trading using opposite Derwent London and Howden Joinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Derwent London position performs unexpectedly, Howden Joinery 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 Howden Joinery will offset losses from the drop in Howden Joinery's long position.| Derwent London vs. Hammerson PLC | Derwent London vs. Supermarket Income REIT | Derwent London vs. Lendinvest PLC | Derwent London vs. Neometals |
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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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