Correlation Between WPP PLC and CyberAgent

Can any of the company-specific risk be diversified away by investing in both WPP PLC and CyberAgent 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 CyberAgent 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 CyberAgent, you can compare the effects of market volatilities on WPP PLC and CyberAgent 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 CyberAgent. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and CyberAgent.

Diversification Opportunities for WPP PLC and CyberAgent

0.44

Correlation Coefficient

WPP PLC  CyberAgent

Very weak diversification

The 3 months correlation between WPP and CyberAgent is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and CyberAgent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CyberAgent 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 CyberAgent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CyberAgent has no effect on the direction of WPP PLC i.e., WPP PLC and CyberAgent go up and down completely randomly.

Pair Corralation between WPP PLC and CyberAgent

Assuming the 90 days trading horizon WPP PLC is expected to generate 2.98 times less return on investment than CyberAgent. But when comparing it to its historical volatility, WPP PLC ADR is 1.64 times less risky than CyberAgent. It trades about 0.02 of its potential returns per unit of risk. CyberAgent is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  575.00  in CyberAgent on October 13, 2024 and sell it today you would earn a total of  75.00  from holding CyberAgent or generate 13.04% return on investment over 90 days.

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

WPP PLC ADR  vs.  CyberAgent

WPP PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

CyberAgent

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days CyberAgent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CyberAgent 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 CyberAgent

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

The idea behind WPP PLC ADR and CyberAgent 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.