Correlation Between Barclays PLC and NatWest Group

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

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

Diversification Opportunities for Barclays PLC and NatWest Group

0.97

Correlation Coefficient

Barclays PLC  NatWest Group

Almost no diversification

The 3 months correlation between Barclays and NatWest is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Barclays PLC and NatWest Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NatWest Group plc and Barclays PLC 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 Barclays PLC are associated (or correlated) with NatWest Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NatWest Group plc has no effect on the direction of Barclays PLC i.e., Barclays PLC and NatWest Group go up and down completely randomly.

Pair Corralation between Barclays PLC and NatWest Group

Assuming the 90 days trading horizon Barclays PLC is expected to generate 1.02 times more return on investment than NatWest Group. However, Barclays PLC is 1.02 times more volatile than NatWest Group plc. It trades about -0.19 of its potential returns per unit of risk. NatWest Group plc is currently generating about -0.33 per unit of risk. If you would invest  8,328  in Barclays PLC on October 15, 2024 and sell it today you would lose (536.00) from holding Barclays PLC or give up 6.44% of portfolio value over 90 days.

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

Barclays PLC  vs.  NatWest Group plc

Barclays PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Barclays PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Barclays PLC sustained solid returns over the last few months and may actually be approaching a breakup point.

NatWest Group plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NatWest Group plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NatWest Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Barclays PLC and NatWest Group

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

The idea behind Barclays PLC and NatWest Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.