Correlation Between Auto Trader and Informa PLC

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

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

Diversification Opportunities for Auto Trader and Informa PLC

0.38

Correlation Coefficient

Auto Trader  Informa PLC

Weak diversification

The 3 months correlation between Auto and Informa is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Informa PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Informa PLC ADR and Auto Trader 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 Auto Trader Group are associated (or correlated) with Informa PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Informa PLC ADR has no effect on the direction of Auto Trader i.e., Auto Trader and Informa PLC go up and down completely randomly.

Pair Corralation between Auto Trader and Informa PLC

Assuming the 90 days horizon Auto Trader Group is expected to under-perform the Informa PLC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 1.2 times less risky than Informa PLC. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Informa PLC ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,100  in Informa PLC ADR on November 20, 2024 and sell it today you would earn a total of  129.00  from holding Informa PLC ADR or generate 6.14% return on investment over 90 days.

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

Auto Trader Group  vs.  Informa PLC ADR

Auto Trader Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Auto Trader Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Auto Trader is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Informa PLC ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Informa PLC ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Informa PLC may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Auto Trader and Informa PLC

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

The idea behind Auto Trader Group and Informa 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.