Correlation Between WPP PLC and Dentsu

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

Diversification Opportunities for WPP PLC and Dentsu

-0.27

Correlation Coefficient

WPP PLC  Dentsu

Very good diversification

The 3 months correlation between WPP and Dentsu is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Dentsu Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dentsu Group 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 Dentsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dentsu Group has no effect on the direction of WPP PLC i.e., WPP PLC and Dentsu go up and down completely randomly.

Pair Corralation between WPP PLC and Dentsu

Assuming the 90 days trading horizon WPP PLC ADR is expected to under-perform the Dentsu. But the stock apears to be less risky and, when comparing its historical volatility, WPP PLC ADR is 1.2 times less risky than Dentsu. The stock trades about -0.78 of its potential returns per unit of risk. The Dentsu Group is currently generating about -0.49 of returns per unit of risk over similar time horizon. If you would invest  2,500  in Dentsu Group on October 13, 2024 and sell it today you would lose (320.00) from holding Dentsu Group or give up 12.8% of portfolio value over 90 days.

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

WPP PLC ADR  vs.  Dentsu Group

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.

Dentsu Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dentsu Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with WPP PLC and Dentsu

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

The idea behind WPP PLC ADR and Dentsu Group 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.