Correlation Between Associated British and Dotdigital Group

Can any of the company-specific risk be diversified away by investing in both Associated British and Dotdigital Group 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 Associated British and Dotdigital Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Associated British Foods and Dotdigital Group Plc, you can compare the effects of market volatilities on Associated British and Dotdigital Group 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 Associated British with a short position of Dotdigital Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Associated British and Dotdigital Group.

Diversification Opportunities for Associated British and Dotdigital Group

-0.28

Correlation Coefficient

Associated British  Dotdigital Group

Very good diversification

The 3 months correlation between Associated and Dotdigital is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Dotdigital Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dotdigital Group Plc and Associated British 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 Associated British Foods are associated (or correlated) with Dotdigital Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dotdigital Group Plc has no effect on the direction of Associated British i.e., Associated British and Dotdigital Group go up and down completely randomly.

Pair Corralation between Associated British and Dotdigital Group

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Dotdigital Group. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.69 times less risky than Dotdigital Group. The stock trades about -0.1 of its potential returns per unit of risk. The Dotdigital Group Plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,000  in Dotdigital Group Plc on September 4, 2024 and sell it today you would earn a total of  540.00  from holding Dotdigital Group Plc or generate 6.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Associated British Foods  vs.  Dotdigital Group Plc

Associated British Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Associated British Foods 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.

Dotdigital Group Plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dotdigital Group Plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Dotdigital Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Associated British and Dotdigital Group

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

The idea behind Associated British Foods and Dotdigital Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.