Correlation Between Derwent London and Ecofin Global

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

Diversification Opportunities for Derwent London and Ecofin Global

0.31

Correlation Coefficient

Derwent London  Ecofin Global

Weak diversification

The 3 months correlation between Derwent and Ecofin is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Ecofin Global Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecofin Global Utilities 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 Ecofin Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecofin Global Utilities has no effect on the direction of Derwent London i.e., Derwent London and Ecofin Global go up and down completely randomly.

Pair Corralation between Derwent London and Ecofin Global

Assuming the 90 days trading horizon Derwent London PLC is expected to generate 1.44 times more return on investment than Ecofin Global. However, Derwent London is 1.44 times more volatile than Ecofin Global Utilities. It trades about 0.02 of its potential returns per unit of risk. Ecofin Global Utilities is currently generating about 0.03 per unit of risk. If you would invest  185,630  in Derwent London PLC on October 4, 2024 and sell it today you would earn a total of  12,270  from holding Derwent London PLC or generate 6.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.7%
Values	Daily Returns

Derwent London PLC  vs.  Ecofin Global Utilities

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.

Ecofin Global Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecofin Global Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Derwent London and Ecofin Global

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

The idea behind Derwent London PLC and Ecofin Global Utilities 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .