Correlation Between Associated British and Marks

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

Diversification Opportunities for Associated British and Marks

0.03

Correlation Coefficient

Associated British  Marks

Significant diversification

The 3 months correlation between Associated and Marks is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Marks and Spencer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marks and Spencer 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 Marks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marks and Spencer has no effect on the direction of Associated British i.e., Associated British and Marks go up and down completely randomly.

Pair Corralation between Associated British and Marks

Assuming the 90 days trading horizon Associated British Foods is expected to under-perform the Marks. But the stock apears to be less risky and, when comparing its historical volatility, Associated British Foods is 1.35 times less risky than Marks. The stock trades about -0.13 of its potential returns per unit of risk. The Marks and Spencer is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  36,684  in Marks and Spencer on October 5, 2024 and sell it today you would earn a total of  2,246  from holding Marks and Spencer or generate 6.12% return on investment over 90 days.

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

Associated British Foods  vs.  Marks and Spencer

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 unsteady 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.

Marks and Spencer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Marks and Spencer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Marks may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Associated British and Marks

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

The idea behind Associated British Foods and Marks and Spencer 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.