Correlation Between Derwent London and Reckitt Benckiser

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

Diversification Opportunities for Derwent London and Reckitt Benckiser

-0.19

Correlation Coefficient

Derwent London  Reckitt Benckiser

Good diversification

The 3 months correlation between Derwent and Reckitt is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Reckitt Benckiser Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reckitt Benckiser 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 Reckitt Benckiser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reckitt Benckiser has no effect on the direction of Derwent London i.e., Derwent London and Reckitt Benckiser go up and down completely randomly.

Pair Corralation between Derwent London and Reckitt Benckiser

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the Reckitt Benckiser. In addition to that, Derwent London is 1.34 times more volatile than Reckitt Benckiser Group. It trades about -0.06 of its total potential returns per unit of risk. Reckitt Benckiser Group is currently generating about 0.13 per unit of volatility. If you would invest  480,700  in Reckitt Benckiser Group on December 29, 2024 and sell it today you would earn a total of  42,500  from holding Reckitt Benckiser Group or generate 8.84% return on investment over 90 days.

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

Derwent London PLC  vs.  Reckitt Benckiser Group

Derwent London PLC

Risk-Adjusted Performance

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 rather sound technical and fundamental indicators, Derwent London is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Reckitt Benckiser

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Reckitt Benckiser may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Derwent London and Reckitt Benckiser

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

The idea behind Derwent London PLC and Reckitt Benckiser Group 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.