Correlation Between Coty and Virgin Group

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

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

Diversification Opportunities for Coty and Virgin Group

-0.63

Correlation Coefficient

Coty  Virgin Group

Excellent diversification

The 3 months correlation between Coty and Virgin is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and Virgin Group Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virgin Group Acquisition and Coty 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 Coty Inc are associated (or correlated) with Virgin Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virgin Group Acquisition has no effect on the direction of Coty i.e., Coty and Virgin Group go up and down completely randomly.

Pair Corralation between Coty and Virgin Group

Given the investment horizon of 90 days Coty Inc is expected to under-perform the Virgin Group. But the stock apears to be less risky and, when comparing its historical volatility, Coty Inc is 1.77 times less risky than Virgin Group. The stock trades about -0.14 of its potential returns per unit of risk. The Virgin Group Acquisition is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  155.00  in Virgin Group Acquisition on November 28, 2024 and sell it today you would earn a total of  5.00  from holding Virgin Group Acquisition or generate 3.23% return on investment over 90 days.

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

Coty Inc  vs.  Virgin Group Acquisition

Coty Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coty Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Virgin Group Acquisition

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Group Acquisition are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Virgin Group may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Coty and Virgin Group

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

The idea behind Coty Inc and Virgin Group Acquisition 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.