Correlation Between Align Technology and WPP PLC

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

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

Diversification Opportunities for Align Technology and WPP PLC

0.26

Correlation Coefficient

Align Technology  WPP PLC

Modest diversification

The 3 months correlation between Align and WPP is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Align Technology and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and Align Technology 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 Align Technology 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 has no effect on the direction of Align Technology i.e., Align Technology and WPP PLC go up and down completely randomly.

Pair Corralation between Align Technology and WPP PLC

Assuming the 90 days horizon Align Technology is expected to generate 1.28 times more return on investment than WPP PLC. However, Align Technology is 1.28 times more volatile than WPP PLC. It trades about 0.07 of its potential returns per unit of risk. WPP PLC is currently generating about 0.04 per unit of risk. If you would invest  19,225  in Align Technology on October 6, 2024 and sell it today you would earn a total of  955.00  from holding Align Technology or generate 4.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.5%
Values	Daily Returns

Align Technology  vs.  WPP PLC

Align Technology

Risk-Adjusted Performance

0 of 100

Very Weak

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

WPP PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, WPP PLC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Align Technology and WPP PLC

The main advantage of trading using opposite Align Technology and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Align Technology 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 Align Technology and WPP 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.

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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.