Correlation Between WPP PLC and Align Technology

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

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

Diversification Opportunities for WPP PLC and Align Technology

0.26

Correlation Coefficient

WPP PLC  Align Technology

Modest diversification

The 3 months correlation between WPP and Align is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC and Align Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Align Technology 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 Align Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Align Technology has no effect on the direction of WPP PLC i.e., WPP PLC and Align Technology go up and down completely randomly.

Pair Corralation between WPP PLC and Align Technology

Assuming the 90 days horizon WPP PLC is expected to generate 2.31 times less return on investment than Align Technology. But when comparing it to its historical volatility, WPP PLC is 1.28 times less risky than Align Technology. It trades about 0.04 of its potential returns per unit of risk. Align Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  19,225  in Align Technology on October 6, 2024 and sell it today you would earn a total of  955.00  from holding Align Technology or generate 4.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.5%
Values	Daily Returns

WPP PLC  vs.  Align Technology

WPP PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, WPP PLC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with WPP PLC and Align Technology

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

The idea behind WPP PLC and Align Technology 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.