Correlation Between Fevertree Drinks and London Security
Can any of the company-specific risk be diversified away by investing in both Fevertree Drinks and London Security 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 Fevertree Drinks and London Security into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fevertree Drinks Plc and London Security Plc, you can compare the effects of market volatilities on Fevertree Drinks and London Security 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 Fevertree Drinks with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and London Security.
Diversification Opportunities for Fevertree Drinks and London Security
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fevertree and London is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security Plc and Fevertree Drinks 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 Fevertree Drinks Plc are associated (or correlated) with London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of Fevertree Drinks i.e., Fevertree Drinks and London Security go up and down completely randomly.
Pair Corralation between Fevertree Drinks and London Security
Assuming the 90 days trading horizon Fevertree Drinks Plc is expected to under-perform the London Security. In addition to that, Fevertree Drinks is 1.99 times more volatile than London Security Plc. It trades about -0.11 of its total potential returns per unit of risk. London Security Plc is currently generating about 0.05 per unit of volatility. If you would invest 294,207 in London Security Plc on September 1, 2024 and sell it today you would earn a total of 30,793 from holding London Security Plc or generate 10.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fevertree Drinks Plc vs. London Security Plc
Performance |
| Timeline |
| Fevertree Drinks Plc |
| London Security Plc |
Fevertree Drinks and London Security Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fevertree Drinks and London Security
The main advantage of trading using opposite Fevertree Drinks and London Security positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fevertree Drinks position performs unexpectedly, London Security 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 London Security will offset losses from the drop in London Security's long position.| Fevertree Drinks vs. SBM Offshore NV | Fevertree Drinks vs. Solstad Offshore ASA | Fevertree Drinks vs. Teradata Corp | Fevertree Drinks vs. Fidelity National Information |
| London Security vs. Samsung Electronics Co | London Security vs. Samsung Electronics Co | London Security vs. Hyundai Motor | London Security vs. Toyota Motor Corp |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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