Correlation Between Informa PLC and Smiths Group
Can any of the company-specific risk be diversified away by investing in both Informa PLC and Smiths 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 Informa PLC and Smiths Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Informa PLC ADR and Smiths Group Plc, you can compare the effects of market volatilities on Informa PLC and Smiths 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 Informa PLC with a short position of Smiths Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Informa PLC and Smiths Group.
Diversification Opportunities for Informa PLC and Smiths Group
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Informa and Smiths is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Informa PLC ADR and Smiths Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smiths Group Plc and Informa PLC 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 Informa PLC ADR are associated (or correlated) with Smiths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smiths Group Plc has no effect on the direction of Informa PLC i.e., Informa PLC and Smiths Group go up and down completely randomly.
Pair Corralation between Informa PLC and Smiths Group
Assuming the 90 days horizon Informa PLC is expected to generate 28.59 times less return on investment than Smiths Group. But when comparing it to its historical volatility, Informa PLC ADR is 1.15 times less risky than Smiths Group. It trades about 0.01 of its potential returns per unit of risk. Smiths Group Plc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,081 in Smiths Group Plc on August 30, 2024 and sell it today you would earn a total of 197.00 from holding Smiths Group Plc or generate 9.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Informa PLC ADR vs. Smiths Group Plc
Performance |
| Timeline |
| Informa PLC ADR |
| Smiths Group Plc |
Informa PLC and Smiths Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Informa PLC and Smiths Group
The main advantage of trading using opposite Informa PLC and Smiths Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Informa PLC position performs unexpectedly, Smiths 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 Smiths Group will offset losses from the drop in Smiths Group's long position.| Informa PLC vs. Legible | Informa PLC vs. FP Newspapers | Informa PLC vs. RCS MediaGroup SpA | Informa PLC vs. Scholastic |
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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