Correlation Between WPP PLC and INEO Tech
Can any of the company-specific risk be diversified away by investing in both WPP PLC and INEO Tech 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 WPP PLC and INEO Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between WPP PLC ADR and INEO Tech Corp, you can compare the effects of market volatilities on WPP PLC and INEO Tech 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 WPP PLC with a short position of INEO Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and INEO Tech.
Diversification Opportunities for WPP PLC and INEO Tech
Average diversification
The 3 months correlation between WPP and INEO is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and INEO Tech Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INEO Tech Corp and WPP 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 WPP PLC ADR are associated (or correlated) with INEO Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INEO Tech Corp has no effect on the direction of WPP PLC i.e., WPP PLC and INEO Tech go up and down completely randomly.
Pair Corralation between WPP PLC and INEO Tech
Considering the 90-day investment horizon WPP PLC is expected to generate 4.87 times less return on investment than INEO Tech. But when comparing it to its historical volatility, WPP PLC ADR is 10.87 times less risky than INEO Tech. It trades about 0.09 of its potential returns per unit of risk. INEO Tech Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 5.78 in INEO Tech Corp on August 27, 2024 and sell it today you would lose (2.98) from holding INEO Tech Corp or give up 51.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
WPP PLC ADR vs. INEO Tech Corp
Performance |
| Timeline |
| WPP PLC ADR |
| INEO Tech Corp |
WPP PLC and INEO Tech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with WPP PLC and INEO Tech
The main advantage of trading using opposite WPP PLC and INEO Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WPP PLC position performs unexpectedly, INEO Tech 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 INEO Tech will offset losses from the drop in INEO Tech's long position.The idea behind WPP PLC ADR and INEO Tech Corp 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.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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