Correlation Between Linedata Services and WPP PLC

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

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

Diversification Opportunities for Linedata Services and WPP PLC

0.42

Correlation Coefficient

Linedata Services  WPP PLC

Very weak diversification

The 3 months correlation between Linedata and WPP is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Linedata Services SA and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and Linedata Services 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 Linedata Services SA are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of Linedata Services i.e., Linedata Services and WPP PLC go up and down completely randomly.

Pair Corralation between Linedata Services and WPP PLC

Assuming the 90 days trading horizon Linedata Services SA is expected to generate 0.79 times more return on investment than WPP PLC. However, Linedata Services SA is 1.26 times less risky than WPP PLC. It trades about -0.02 of its potential returns per unit of risk. WPP PLC is currently generating about -0.24 per unit of risk. If you would invest  8,100  in Linedata Services SA on December 21, 2024 and sell it today you would lose (180.00) from holding Linedata Services SA or give up 2.22% of portfolio value over 90 days.

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

Linedata Services SA  vs.  WPP PLC

Linedata Services

Risk-Adjusted Performance

Very Weak

Over the last 90 days Linedata Services SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Linedata Services is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

WPP PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days WPP PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Linedata Services and WPP PLC

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

The idea behind Linedata Services SA and WPP 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.