Correlation Between Experian Plc and Direct Equity

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

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

Diversification Opportunities for Experian Plc and Direct Equity

0.71

Correlation Coefficient

Experian Plc  Direct Equity

Poor diversification

The 3 months correlation between Experian and Direct is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Experian plc PK and Direct Equity International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Equity Intern and Experian Plc 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 Experian plc PK are associated (or correlated) with Direct Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Equity Intern has no effect on the direction of Experian Plc i.e., Experian Plc and Direct Equity go up and down completely randomly.

Pair Corralation between Experian Plc and Direct Equity

Assuming the 90 days horizon Experian Plc is expected to generate 4.91 times less return on investment than Direct Equity. But when comparing it to its historical volatility, Experian plc PK is 10.0 times less risky than Direct Equity. It trades about 0.06 of its potential returns per unit of risk. Direct Equity International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.51  in Direct Equity International on September 14, 2024 and sell it today you would lose (0.50) from holding Direct Equity International or give up 98.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Experian plc PK  vs.  Direct Equity International

Experian plc PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Experian plc PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Experian Plc is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Direct Equity Intern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direct Equity International 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 fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Experian Plc and Direct Equity

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

The idea behind Experian plc PK and Direct Equity International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.