Correlation Between Derwent London and Polar Capital

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

Diversification Opportunities for Derwent London and Polar Capital

-0.89

Correlation Coefficient

Derwent London  Polar Capital

Pay attention - limited upside

The 3 months correlation between Derwent and Polar is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Polar Capital Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polar Capital Technology 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 Polar Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polar Capital Technology has no effect on the direction of Derwent London i.e., Derwent London and Polar Capital go up and down completely randomly.

Pair Corralation between Derwent London and Polar Capital

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the Polar Capital. But the stock apears to be less risky and, when comparing its historical volatility, Derwent London PLC is 1.08 times less risky than Polar Capital. The stock trades about -0.17 of its potential returns per unit of risk. The Polar Capital Technology is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  28,200  in Polar Capital Technology on September 5, 2024 and sell it today you would earn a total of  5,700  from holding Polar Capital Technology or generate 20.21% return on investment over 90 days.

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

Derwent London PLC  vs.  Polar Capital Technology

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.

Polar Capital Technology

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Polar Capital Technology are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Polar Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Derwent London and Polar Capital

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

The idea behind Derwent London PLC and Polar Capital Technology 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.