Correlation Between GXO Logistics and Royal Mail

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

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

Diversification Opportunities for GXO Logistics and Royal Mail

-0.68

Correlation Coefficient

GXO Logistics  Royal Mail

Excellent diversification

The 3 months correlation between GXO and Royal is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding GXO Logistics and Royal Mail PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Mail PLC and GXO Logistics 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 GXO Logistics are associated (or correlated) with Royal Mail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Mail PLC has no effect on the direction of GXO Logistics i.e., GXO Logistics and Royal Mail go up and down completely randomly.

Pair Corralation between GXO Logistics and Royal Mail

Considering the 90-day investment horizon GXO Logistics is expected to under-perform the Royal Mail. In addition to that, GXO Logistics is 4.07 times more volatile than Royal Mail PLC. It trades about -0.03 of its total potential returns per unit of risk. Royal Mail PLC is currently generating about 0.05 per unit of volatility. If you would invest  907.00  in Royal Mail PLC on December 28, 2024 and sell it today you would earn a total of  17.00  from holding Royal Mail PLC or generate 1.87% return on investment over 90 days.

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

GXO Logistics  vs.  Royal Mail PLC

GXO Logistics

Risk-Adjusted Performance

Very Weak

Over the last 90 days GXO Logistics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, GXO Logistics is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Royal Mail PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Mail PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Royal Mail is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GXO Logistics and Royal Mail

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

The idea behind GXO Logistics and Royal Mail 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.