Correlation Between Ferguson Plc and WESCO International

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

By analyzing existing cross correlation between Ferguson Plc and WESCO International, you can compare the effects of market volatilities on Ferguson Plc and WESCO International 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 WESCO International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferguson Plc and WESCO International.

Diversification Opportunities for Ferguson Plc and WESCO International

0.84

Correlation Coefficient

Ferguson Plc  WESCO International

Very poor diversification

The 3 months correlation between Ferguson and WESCO is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ferguson Plc and WESCO International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESCO International 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 WESCO International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESCO International has no effect on the direction of Ferguson Plc i.e., Ferguson Plc and WESCO International go up and down completely randomly.

Pair Corralation between Ferguson Plc and WESCO International

Given the investment horizon of 90 days Ferguson Plc is expected to generate 0.63 times more return on investment than WESCO International. However, Ferguson Plc is 1.59 times less risky than WESCO International. It trades about -0.05 of its potential returns per unit of risk. WESCO International is currently generating about -0.07 per unit of risk. If you would invest  17,270  in Ferguson Plc on December 29, 2024 and sell it today you would lose (972.00) from holding Ferguson Plc or give up 5.63% of portfolio value over 90 days.

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

Ferguson Plc  vs.  WESCO International

Ferguson Plc

Risk-Adjusted Performance

Very Weak

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

WESCO International

Risk-Adjusted Performance

Very Weak

Over the last 90 days WESCO International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Ferguson Plc and WESCO International

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

The idea behind Ferguson Plc and WESCO 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.