Correlation Between Derwent London and Futura Medical

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

Diversification Opportunities for Derwent London and Futura Medical

0.17

Correlation Coefficient

Derwent London  Futura Medical

Average diversification

The 3 months correlation between Derwent and Futura is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Futura Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Futura Medical 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 Futura Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Futura Medical has no effect on the direction of Derwent London i.e., Derwent London and Futura Medical go up and down completely randomly.

Pair Corralation between Derwent London and Futura Medical

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the Futura Medical. But the stock apears to be less risky and, when comparing its historical volatility, Derwent London PLC is 2.21 times less risky than Futura Medical. The stock trades about -0.02 of its potential returns per unit of risk. The Futura Medical is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,195  in Futura Medical on October 10, 2024 and sell it today you would lose (2,045) from holding Futura Medical or give up 39.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Derwent London PLC  vs.  Futura Medical

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 unsteady 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.

Futura Medical

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Derwent London and Futura Medical

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

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