Correlation Between Aspen Technology and WPP PLC

Can any of the company-specific risk be diversified away by investing in both Aspen 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 Aspen 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 Aspen Technology and WPP PLC ADR, you can compare the effects of market volatilities on Aspen 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 Aspen Technology with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aspen Technology and WPP PLC.

Diversification Opportunities for Aspen Technology and WPP PLC

0.55

Correlation Coefficient

Aspen Technology  WPP PLC

Very weak diversification

The 3 months correlation between Aspen and WPP is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Aspen Technology 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 Aspen 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 Aspen 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 ADR has no effect on the direction of Aspen Technology i.e., Aspen Technology and WPP PLC go up and down completely randomly.

Pair Corralation between Aspen Technology and WPP PLC

Given the investment horizon of 90 days Aspen Technology is expected to generate 0.54 times more return on investment than WPP PLC. However, Aspen Technology is 1.86 times less risky than WPP PLC. It trades about 0.1 of its potential returns per unit of risk. WPP PLC ADR is currently generating about -0.18 per unit of risk. If you would invest  24,433  in Aspen Technology on October 7, 2024 and sell it today you would earn a total of  661.00  from holding Aspen Technology or generate 2.71% return on investment over 90 days.

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

Aspen Technology  vs.  WPP PLC ADR

Aspen Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aspen Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Aspen Technology is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

WPP PLC ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WPP PLC is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Aspen Technology and WPP PLC

The main advantage of trading using opposite Aspen Technology and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aspen 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 Aspen Technology 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.