Correlation Between WPP PLC and FIRST SAVINGS

Can any of the company-specific risk be diversified away by investing in both WPP PLC and FIRST SAVINGS 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 FIRST SAVINGS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WPP PLC and FIRST SAVINGS FINL, you can compare the effects of market volatilities on WPP PLC and FIRST SAVINGS 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 FIRST SAVINGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and FIRST SAVINGS.

Diversification Opportunities for WPP PLC and FIRST SAVINGS

0.65

Correlation Coefficient

WPP PLC  FIRST SAVINGS

Poor diversification

The 3 months correlation between WPP and FIRST is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC and FIRST SAVINGS FINL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FIRST SAVINGS FINL 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 are associated (or correlated) with FIRST SAVINGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FIRST SAVINGS FINL has no effect on the direction of WPP PLC i.e., WPP PLC and FIRST SAVINGS go up and down completely randomly.

Pair Corralation between WPP PLC and FIRST SAVINGS

Assuming the 90 days trading horizon WPP PLC is expected to under-perform the FIRST SAVINGS. But the stock apears to be less risky and, when comparing its historical volatility, WPP PLC is 1.04 times less risky than FIRST SAVINGS. The stock trades about -0.2 of its potential returns per unit of risk. The FIRST SAVINGS FINL is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,224  in FIRST SAVINGS FINL on December 20, 2024 and sell it today you would lose (144.00) from holding FIRST SAVINGS FINL or give up 6.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

WPP PLC  vs.  FIRST SAVINGS FINL

WPP PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days WPP PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

FIRST SAVINGS FINL

Risk-Adjusted Performance

Very Weak

Over the last 90 days FIRST SAVINGS FINL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FIRST SAVINGS is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with WPP PLC and FIRST SAVINGS

The main advantage of trading using opposite WPP PLC and FIRST SAVINGS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WPP PLC position performs unexpectedly, FIRST SAVINGS 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 FIRST SAVINGS will offset losses from the drop in FIRST SAVINGS's long position.

The idea behind WPP PLC and FIRST SAVINGS FINL 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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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.