Correlation Between Centrica PLC and Glencore PLC

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

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

Diversification Opportunities for Centrica PLC and Glencore PLC

-0.32

Correlation Coefficient

Centrica PLC  Glencore PLC

Very good diversification

The 3 months correlation between Centrica and Glencore is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Centrica PLC and Glencore PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC and Centrica 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 Centrica PLC are associated (or correlated) with Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC has no effect on the direction of Centrica PLC i.e., Centrica PLC and Glencore PLC go up and down completely randomly.

Pair Corralation between Centrica PLC and Glencore PLC

Assuming the 90 days trading horizon Centrica PLC is expected to generate 34.9 times more return on investment than Glencore PLC. However, Centrica PLC is 34.9 times more volatile than Glencore PLC. It trades about 0.05 of its potential returns per unit of risk. Glencore PLC is currently generating about -0.03 per unit of risk. If you would invest  14,950  in Centrica PLC on October 1, 2024 and sell it today you would lose (1,765) from holding Centrica PLC or give up 11.81% of portfolio value over 90 days.

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

Centrica PLC  vs.  Glencore PLC

Centrica PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Centrica PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Centrica PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Glencore PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Centrica PLC and Glencore PLC

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

The idea behind Centrica PLC and Glencore 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.