Correlation Between Nike and WPP PLC

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

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

Diversification Opportunities for Nike and WPP PLC

0.45

Correlation Coefficient

Nike  WPP PLC

Very weak diversification

The 3 months correlation between Nike and WPP is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and Nike 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 Nike Inc 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 ADR has no effect on the direction of Nike i.e., Nike and WPP PLC go up and down completely randomly.

Pair Corralation between Nike and WPP PLC

Considering the 90-day investment horizon Nike Inc is expected to generate 0.76 times more return on investment than WPP PLC. However, Nike Inc is 1.31 times less risky than WPP PLC. It trades about 0.01 of its potential returns per unit of risk. WPP PLC ADR is currently generating about -0.19 per unit of risk. If you would invest  7,909  in Nike Inc on December 2, 2024 and sell it today you would earn a total of  34.00  from holding Nike Inc or generate 0.43% return on investment over 90 days.

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

Nike Inc  vs.  WPP PLC ADR

Nike Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

WPP PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days WPP PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Nike and WPP PLC

The main advantage of trading using opposite Nike and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc and WPP PLC ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.