Correlation Between Gear4music Plc and Marks

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

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

Diversification Opportunities for Gear4music Plc and Marks

0.71

Correlation Coefficient

Gear4music Plc  Marks

Poor diversification

The 3 months correlation between Gear4music and Marks is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Gear4music Plc and Marks and Spencer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marks and Spencer and Gear4music 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 Gear4music Plc are associated (or correlated) with Marks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marks and Spencer has no effect on the direction of Gear4music Plc i.e., Gear4music Plc and Marks go up and down completely randomly.

Pair Corralation between Gear4music Plc and Marks

Assuming the 90 days trading horizon Gear4music Plc is expected to under-perform the Marks. But the stock apears to be less risky and, when comparing its historical volatility, Gear4music Plc is 1.0 times less risky than Marks. The stock trades about -0.12 of its potential returns per unit of risk. The Marks and Spencer is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  38,210  in Marks and Spencer on October 20, 2024 and sell it today you would lose (4,760) from holding Marks and Spencer or give up 12.46% of portfolio value over 90 days.

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

Gear4music Plc  vs.  Marks and Spencer

Gear4music Plc

Risk-Adjusted Performance

0 of 100

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 unsteady 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.

Marks and Spencer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marks and Spencer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and 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 Gear4music Plc and Marks

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

The idea behind Gear4music Plc and Marks and Spencer 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.