Correlation Between Direct Digital and WPP PLC

Can any of the company-specific risk be diversified away by investing in both Direct Digital and WPP PLC 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 Direct Digital and WPP PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direct Digital Holdings and WPP PLC ADR, you can compare the effects of market volatilities on Direct Digital and WPP PLC 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 Direct Digital with a short position of WPP PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Digital and WPP PLC.

Diversification Opportunities for Direct Digital and WPP PLC

-0.43

Correlation Coefficient

Direct Digital  WPP PLC

Very good diversification

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

Pair Corralation between Direct Digital and WPP PLC

Given the investment horizon of 90 days Direct Digital Holdings is expected to generate 108.94 times more return on investment than WPP PLC. However, Direct Digital is 108.94 times more volatile than WPP PLC ADR. It trades about 0.12 of its potential returns per unit of risk. WPP PLC ADR is currently generating about -0.01 per unit of risk. If you would invest  272.00  in Direct Digital Holdings on October 1, 2024 and sell it today you would lose (20.00) from holding Direct Digital Holdings or give up 7.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.62%
Values	Daily Returns

Direct Digital Holdings  vs.  WPP PLC ADR

Direct Digital Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Digital Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental indicators, Direct Digital unveiled solid returns over the last few months and may actually be approaching a breakup point.

WPP PLC ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WPP PLC is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Direct Digital and WPP PLC

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

The idea behind Direct Digital Holdings and WPP PLC ADR 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.