Correlation Between Ferguson Plc and Distribution Solutions

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

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

Diversification Opportunities for Ferguson Plc and Distribution Solutions

0.63

Correlation Coefficient

Ferguson Plc  Distribution Solutions

Poor diversification

The 3 months correlation between Ferguson and Distribution is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ferguson Plc and Distribution Solutions Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Distribution Solutions and Ferguson 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 Ferguson Plc are associated (or correlated) with Distribution Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Distribution Solutions has no effect on the direction of Ferguson Plc i.e., Ferguson Plc and Distribution Solutions go up and down completely randomly.

Pair Corralation between Ferguson Plc and Distribution Solutions

Given the investment horizon of 90 days Ferguson Plc is expected to under-perform the Distribution Solutions. But the stock apears to be less risky and, when comparing its historical volatility, Ferguson Plc is 1.32 times less risky than Distribution Solutions. The stock trades about -0.07 of its potential returns per unit of risk. The Distribution Solutions Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  3,851  in Distribution Solutions Group on September 29, 2024 and sell it today you would lose (380.00) from holding Distribution Solutions Group or give up 9.87% of portfolio value over 90 days.

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

Ferguson Plc  vs.  Distribution Solutions Group

Ferguson Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferguson Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Distribution Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Distribution Solutions Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Ferguson Plc and Distribution Solutions

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

The idea behind Ferguson Plc and Distribution Solutions 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.