Correlation Between Deutsche Post and Royal Mail

Can any of the company-specific risk be diversified away by investing in both Deutsche Post and Royal Mail 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 Deutsche Post and Royal Mail into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Deutsche Post AG and Royal Mail PLC, you can compare the effects of market volatilities on Deutsche Post and Royal Mail 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 Deutsche Post with a short position of Royal Mail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Post and Royal Mail.

Diversification Opportunities for Deutsche Post and Royal Mail

0.36

Correlation Coefficient

Deutsche Post  Royal Mail

Weak diversification

The 3 months correlation between Deutsche and Royal is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Post AG and Royal Mail PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Mail PLC and Deutsche Post 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 Deutsche Post AG are associated (or correlated) with Royal Mail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Mail PLC has no effect on the direction of Deutsche Post i.e., Deutsche Post and Royal Mail go up and down completely randomly.

Pair Corralation between Deutsche Post and Royal Mail

Assuming the 90 days horizon Deutsche Post AG is expected to under-perform the Royal Mail. In addition to that, Deutsche Post is 2.31 times more volatile than Royal Mail PLC. It trades about -0.05 of its total potential returns per unit of risk. Royal Mail PLC is currently generating about 0.13 per unit of volatility. If you would invest  802.00  in Royal Mail PLC on September 22, 2024 and sell it today you would earn a total of  113.00  from holding Royal Mail PLC or generate 14.09% return on investment over 90 days.

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

Deutsche Post AG  vs.  Royal Mail PLC

Deutsche Post AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Post AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Royal Mail PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Mail PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Royal Mail is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deutsche Post and Royal Mail

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

The idea behind Deutsche Post AG and Royal Mail PLC 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.