Correlation Between Entravision Communications and ITV Plc

Can any of the company-specific risk be diversified away by investing in both Entravision Communications and ITV 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 Entravision Communications and ITV Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Entravision Communications and ITV plc, you can compare the effects of market volatilities on Entravision Communications and ITV 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 Entravision Communications with a short position of ITV Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entravision Communications and ITV Plc.

Diversification Opportunities for Entravision Communications and ITV Plc

-0.41

Correlation Coefficient

Entravision Communications  ITV Plc

Very good diversification

The 3 months correlation between Entravision and ITV is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Entravision Communications and ITV plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITV plc and Entravision Communications 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 Entravision Communications are associated (or correlated) with ITV Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITV plc has no effect on the direction of Entravision Communications i.e., Entravision Communications and ITV Plc go up and down completely randomly.

Pair Corralation between Entravision Communications and ITV Plc

Assuming the 90 days horizon Entravision Communications is expected to under-perform the ITV Plc. In addition to that, Entravision Communications is 2.26 times more volatile than ITV plc. It trades about -0.01 of its total potential returns per unit of risk. ITV plc is currently generating about 0.0 per unit of volatility. If you would invest  86.00  in ITV plc on December 4, 2024 and sell it today you would lose (1.00) from holding ITV plc or give up 1.16% of portfolio value over 90 days.

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

Entravision Communications  vs.  ITV plc

Entravision Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Entravision Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Entravision Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ITV plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITV plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ITV Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Entravision Communications and ITV Plc

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

The idea behind Entravision Communications and ITV 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.