Correlation Between Persimmon PLC and Barratt Developments

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

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

Diversification Opportunities for Persimmon PLC and Barratt Developments

0.42

Correlation Coefficient

Persimmon PLC  Barratt Developments

Very weak diversification

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

Pair Corralation between Persimmon PLC and Barratt Developments

Assuming the 90 days horizon Persimmon PLC is expected to under-perform the Barratt Developments. In addition to that, Persimmon PLC is 1.16 times more volatile than Barratt Developments PLC. It trades about -0.07 of its total potential returns per unit of risk. Barratt Developments PLC is currently generating about 0.0 per unit of volatility. If you would invest  1,095  in Barratt Developments PLC on December 1, 2024 and sell it today you would lose (14.00) from holding Barratt Developments PLC or give up 1.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	75.0%
Values	Daily Returns

Persimmon PLC  vs.  Barratt Developments PLC

Persimmon PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Persimmon PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Barratt Developments PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Barratt Developments PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Barratt Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Persimmon PLC and Barratt Developments

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

The idea behind Persimmon PLC and Barratt Developments 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.