Correlation Between Derwent London and Life Science

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

Diversification Opportunities for Derwent London and Life Science

-0.31

Correlation Coefficient

Derwent London  Life Science

Very good diversification

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

Pair Corralation between Derwent London and Life Science

Assuming the 90 days trading horizon Derwent London PLC is expected to generate 0.88 times more return on investment than Life Science. However, Derwent London PLC is 1.13 times less risky than Life Science. It trades about -0.04 of its potential returns per unit of risk. Life Science REIT is currently generating about -0.09 per unit of risk. If you would invest  235,911  in Derwent London PLC on September 24, 2024 and sell it today you would lose (38,711) from holding Derwent London PLC or give up 16.41% of portfolio value over 90 days.

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

Derwent London PLC  vs.  Life Science REIT

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

Life Science REIT

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Life Science REIT are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Life Science unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Derwent London and Life Science

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

The idea behind Derwent London PLC and Life Science REIT 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.