Correlation Between Futura Medical and Derwent London

Can any of the company-specific risk be diversified away by investing in both Futura Medical and Derwent London 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 Futura Medical and Derwent London into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Futura Medical and Derwent London PLC, you can compare the effects of market volatilities on Futura Medical and Derwent London 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 Futura Medical with a short position of Derwent London. Check out your portfolio center. Please also check ongoing floating volatility patterns of Futura Medical and Derwent London.

Diversification Opportunities for Futura Medical and Derwent London

0.31

Correlation Coefficient

Futura Medical  Derwent London

Weak diversification

The 3 months correlation between Futura and Derwent is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Futura Medical and Derwent London PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Derwent London PLC and Futura Medical 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 Futura Medical are associated (or correlated) with Derwent London. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Derwent London PLC has no effect on the direction of Futura Medical i.e., Futura Medical and Derwent London go up and down completely randomly.

Pair Corralation between Futura Medical and Derwent London

Assuming the 90 days trading horizon Futura Medical is expected to under-perform the Derwent London. But the stock apears to be less risky and, when comparing its historical volatility, Futura Medical is 1.08 times less risky than Derwent London. The stock trades about -0.43 of its potential returns per unit of risk. The Derwent London PLC is currently generating about -0.34 of returns per unit of risk over similar time horizon. If you would invest  204,800  in Derwent London PLC on October 10, 2024 and sell it today you would lose (12,900) from holding Derwent London PLC or give up 6.3% of portfolio value over 90 days.

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

Futura Medical  vs.  Derwent London PLC

Futura Medical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Futura Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Futura Medical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Derwent London PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Derwent London PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Futura Medical and Derwent London

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

The idea behind Futura Medical and Derwent London 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.