Correlation Between Persimmon Plc and Taylor Wimpey

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

By analyzing existing cross correlation between Persimmon Plc and Taylor Wimpey plc, you can compare the effects of market volatilities on Persimmon Plc and Taylor Wimpey 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 Taylor Wimpey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Persimmon Plc and Taylor Wimpey.

Diversification Opportunities for Persimmon Plc and Taylor Wimpey

0.72

Correlation Coefficient

Persimmon Plc  Taylor Wimpey

Poor diversification

The 3 months correlation between Persimmon and Taylor is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Persimmon Plc and Taylor Wimpey plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taylor Wimpey 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 Taylor Wimpey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taylor Wimpey plc has no effect on the direction of Persimmon Plc i.e., Persimmon Plc and Taylor Wimpey go up and down completely randomly.

Pair Corralation between Persimmon Plc and Taylor Wimpey

Assuming the 90 days horizon Persimmon Plc is expected to generate 2.27 times less return on investment than Taylor Wimpey. But when comparing it to its historical volatility, Persimmon Plc is 2.05 times less risky than Taylor Wimpey. It trades about 0.05 of its potential returns per unit of risk. Taylor Wimpey plc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  121.00  in Taylor Wimpey plc on November 20, 2024 and sell it today you would earn a total of  26.00  from holding Taylor Wimpey plc or generate 21.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	38.92%
Values	Daily Returns

Persimmon Plc  vs.  Taylor Wimpey plc

Persimmon Plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Persimmon Plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Persimmon Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Taylor Wimpey plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taylor Wimpey plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Taylor Wimpey is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Persimmon Plc and Taylor Wimpey

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

The idea behind Persimmon Plc and Taylor Wimpey 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.