Correlation Between Gear4music (Holdings) and Vodafone Group

Can any of the company-specific risk be diversified away by investing in both Gear4music (Holdings) and Vodafone Group 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 Gear4music (Holdings) and Vodafone Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gear4music Plc and Vodafone Group PLC, you can compare the effects of market volatilities on Gear4music (Holdings) and Vodafone Group 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 Gear4music (Holdings) with a short position of Vodafone Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gear4music (Holdings) and Vodafone Group.

Diversification Opportunities for Gear4music (Holdings) and Vodafone Group

-0.55

Correlation Coefficient

Gear4music (Holdings)  Vodafone Group

Excellent diversification

The 3 months correlation between Gear4music and Vodafone is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Gear4music Plc and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group PLC and Gear4music (Holdings) 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 Gear4music Plc are associated (or correlated) with Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Gear4music (Holdings) i.e., Gear4music (Holdings) and Vodafone Group go up and down completely randomly.

Pair Corralation between Gear4music (Holdings) and Vodafone Group

Assuming the 90 days trading horizon Gear4music Plc is expected to under-perform the Vodafone Group. But the stock apears to be less risky and, when comparing its historical volatility, Gear4music Plc is 1.25 times less risky than Vodafone Group. The stock trades about -0.25 of its potential returns per unit of risk. The Vodafone Group PLC is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  844.00  in Vodafone Group PLC on December 26, 2024 and sell it today you would earn a total of  90.00  from holding Vodafone Group PLC or generate 10.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Gear4music Plc  vs.  Vodafone Group PLC

Gear4music (Holdings)

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gear4music 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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Vodafone Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vodafone Group PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vodafone Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Gear4music (Holdings) and Vodafone Group

The main advantage of trading using opposite Gear4music (Holdings) and Vodafone Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gear4music (Holdings) position performs unexpectedly, Vodafone Group 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 Vodafone Group will offset losses from the drop in Vodafone Group's long position.

The idea behind Gear4music Plc and Vodafone Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.