Correlation Between Public Service and London Security

Can any of the company-specific risk be diversified away by investing in both Public Service 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 Public Service and London Security into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Public Service Enterprise and London Security Plc, you can compare the effects of market volatilities on Public Service 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 Public Service with a short position of London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Service and London Security.

Diversification Opportunities for Public Service and London Security

-0.28

Correlation Coefficient

Public Service  London Security

Very good diversification

The 3 months correlation between Public and London is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise 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 Public Service 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 Public Service Enterprise 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 Public Service i.e., Public Service and London Security go up and down completely randomly.

Pair Corralation between Public Service and London Security

Assuming the 90 days trading horizon Public Service Enterprise is expected to under-perform the London Security. In addition to that, Public Service is 1.17 times more volatile than London Security Plc. It trades about -0.32 of its total potential returns per unit of risk. London Security Plc is currently generating about 0.22 per unit of volatility. If you would invest  325,000  in London Security Plc on September 24, 2024 and sell it today you would earn a total of  15,000  from holding London Security Plc or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Public Service Enterprise  vs.  London Security Plc

Public Service Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Public Service Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Public Service is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Public Service and London Security

The main advantage of trading using opposite Public Service and London Security positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Public Service 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.

The idea behind Public Service Enterprise and London Security Plc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.