Correlation Between Derwent London and Tritax Big

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

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

Diversification Opportunities for Derwent London and Tritax Big

-0.13

Correlation Coefficient

Derwent London  Tritax Big

Good diversification

The 3 months correlation between Derwent and Tritax is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Tritax Big Box in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tritax Big Box and Derwent London 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 Derwent London PLC are associated (or correlated) with Tritax Big. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tritax Big Box has no effect on the direction of Derwent London i.e., Derwent London and Tritax Big go up and down completely randomly.

Pair Corralation between Derwent London and Tritax Big

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the Tritax Big. In addition to that, Derwent London is 1.15 times more volatile than Tritax Big Box. It trades about -0.21 of its total potential returns per unit of risk. Tritax Big Box is currently generating about 0.06 per unit of volatility. If you would invest  14,530  in Tritax Big Box on December 4, 2024 and sell it today you would earn a total of  210.00  from holding Tritax Big Box or generate 1.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Derwent London PLC  vs.  Tritax Big Box

Derwent London PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Derwent London PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Tritax Big Box

Risk-Adjusted Performance

Modest

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

Pair Trading with Derwent London and Tritax Big

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

The idea behind Derwent London PLC and Tritax Big Box 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.