Correlation Between Derwent London and Liontrust Asset

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

Diversification Opportunities for Derwent London and Liontrust Asset

0.43

Correlation Coefficient

Derwent London  Liontrust Asset

Very weak diversification

The 3 months correlation between Derwent and Liontrust is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Liontrust Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liontrust Asset Mana 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 Liontrust Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liontrust Asset Mana has no effect on the direction of Derwent London i.e., Derwent London and Liontrust Asset go up and down completely randomly.

Pair Corralation between Derwent London and Liontrust Asset

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the Liontrust Asset. But the stock apears to be less risky and, when comparing its historical volatility, Derwent London PLC is 2.05 times less risky than Liontrust Asset. The stock trades about -0.22 of its potential returns per unit of risk. The Liontrust Asset Management is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  50,678  in Liontrust Asset Management on October 5, 2024 and sell it today you would lose (3,078) from holding Liontrust Asset Management or give up 6.07% of portfolio value over 90 days.

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

Derwent London PLC  vs.  Liontrust Asset Management

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.

Liontrust Asset Mana

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Liontrust Asset Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Liontrust Asset 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 Liontrust Asset

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

The idea behind Derwent London PLC and Liontrust Asset Management 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..