Correlation Between Aegon NV and WPP PLC

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

By analyzing existing cross correlation between Aegon NV ADR and WPP PLC ADR, you can compare the effects of market volatilities on Aegon NV and WPP PLC 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 Aegon NV with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aegon NV and WPP PLC.

Diversification Opportunities for Aegon NV and WPP PLC

-0.22

Correlation Coefficient

Aegon NV  WPP PLC

Very good diversification

The 3 months correlation between Aegon and WPP is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Aegon NV ADR and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and Aegon NV 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 Aegon NV ADR are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of Aegon NV i.e., Aegon NV and WPP PLC go up and down completely randomly.

Pair Corralation between Aegon NV and WPP PLC

Considering the 90-day investment horizon Aegon NV ADR is expected to generate 0.8 times more return on investment than WPP PLC. However, Aegon NV ADR is 1.25 times less risky than WPP PLC. It trades about 0.13 of its potential returns per unit of risk. WPP PLC ADR is currently generating about -0.17 per unit of risk. If you would invest  568.00  in Aegon NV ADR on December 18, 2024 and sell it today you would earn a total of  89.00  from holding Aegon NV ADR or generate 15.67% return on investment over 90 days.

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

Aegon NV ADR  vs.  WPP PLC ADR

Aegon NV ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aegon NV ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Aegon NV reported solid returns over the last few months and may actually be approaching a breakup point.

WPP PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days WPP PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Aegon NV and WPP PLC

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

The idea behind Aegon NV ADR and WPP PLC ADR 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.