Correlation Between Derwent London and CATLIN GROUP

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

Diversification Opportunities for Derwent London and CATLIN GROUP

0.87

Correlation Coefficient

Derwent London  CATLIN GROUP

Very poor diversification

The 3 months correlation between Derwent and CATLIN is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and CATLIN GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATLIN GROUP 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 CATLIN GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CATLIN GROUP has no effect on the direction of Derwent London i.e., Derwent London and CATLIN GROUP go up and down completely randomly.

Pair Corralation between Derwent London and CATLIN GROUP

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the CATLIN GROUP. In addition to that, Derwent London is 1.56 times more volatile than CATLIN GROUP . It trades about -0.22 of its total potential returns per unit of risk. CATLIN GROUP is currently generating about -0.04 per unit of volatility. If you would invest  9,600  in CATLIN GROUP on October 5, 2024 and sell it today you would lose (200.00) from holding CATLIN GROUP or give up 2.08% of portfolio value over 90 days.

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

Derwent London PLC  vs.  CATLIN GROUP

Derwent London PLC

Risk-Adjusted Performance

0 of 100

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 February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

CATLIN GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CATLIN GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, CATLIN GROUP is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Derwent London and CATLIN GROUP

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

The idea behind Derwent London PLC and CATLIN GROUP 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.