Correlation Between International Consolidated and WPP PLC
Can any of the company-specific risk be diversified away by investing in both International Consolidated and WPP PLC 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 International Consolidated and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between International Consolidated Airlines and WPP PLC ADR, you can compare the effects of market volatilities on International Consolidated and WPP PLC 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 International Consolidated with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Consolidated and WPP PLC.
Diversification Opportunities for International Consolidated and WPP PLC
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between International and WPP is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and International Consolidated 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 International Consolidated Airlines are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of International Consolidated i.e., International Consolidated and WPP PLC go up and down completely randomly.
Pair Corralation between International Consolidated and WPP PLC
Assuming the 90 days horizon International Consolidated Airlines is expected to generate 1.32 times more return on investment than WPP PLC. However, International Consolidated is 1.32 times more volatile than WPP PLC ADR. It trades about 0.14 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.08 per unit of risk. If you would invest 180.00 in International Consolidated Airlines on September 14, 2024 and sell it today you would earn a total of 168.00 from holding International Consolidated Airlines or generate 93.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
International Consolidated Air vs. WPP PLC ADR
Performance |
| Timeline |
| International Consolidated |
| WPP PLC ADR |
International Consolidated and WPP PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with International Consolidated and WPP PLC
The main advantage of trading using opposite International Consolidated and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated position performs unexpectedly, WPP PLC 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 WPP PLC will offset losses from the drop in WPP PLC's long position.The idea behind International Consolidated Airlines and WPP PLC ADR 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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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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