Correlation Between PPL and Melrose Industries

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

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

Diversification Opportunities for PPL and Melrose Industries

0.52

Correlation Coefficient

PPL  Melrose Industries

Very weak diversification

The 3 months correlation between PPL and Melrose is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and Melrose Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melrose Industries PLC and PPL 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 PPL Corporation are associated (or correlated) with Melrose Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melrose Industries PLC has no effect on the direction of PPL i.e., PPL and Melrose Industries go up and down completely randomly.

Pair Corralation between PPL and Melrose Industries

Considering the 90-day investment horizon PPL is expected to generate 1.3 times less return on investment than Melrose Industries. But when comparing it to its historical volatility, PPL Corporation is 4.92 times less risky than Melrose Industries. It trades about 0.13 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  711.00  in Melrose Industries PLC on December 20, 2024 and sell it today you would earn a total of  11.00  from holding Melrose Industries PLC or generate 1.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

PPL Corp.  vs.  Melrose Industries PLC

PPL Corporation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, PPL may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Melrose Industries PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Melrose Industries may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PPL and Melrose Industries

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

The idea behind PPL Corporation and Melrose Industries 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.