Correlation Between Relx PLC and Capital Clean

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

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

Diversification Opportunities for Relx PLC and Capital Clean

0.08

Correlation Coefficient

Relx PLC  Capital Clean

Significant diversification

The 3 months correlation between Relx and Capital is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC ADR and Capital Clean Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Clean Energy and Relx 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 Relx PLC ADR are associated (or correlated) with Capital Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Clean Energy has no effect on the direction of Relx PLC i.e., Relx PLC and Capital Clean go up and down completely randomly.

Pair Corralation between Relx PLC and Capital Clean

Given the investment horizon of 90 days Relx PLC ADR is expected to generate 0.57 times more return on investment than Capital Clean. However, Relx PLC ADR is 1.76 times less risky than Capital Clean. It trades about 0.1 of its potential returns per unit of risk. Capital Clean Energy is currently generating about 0.05 per unit of risk. If you would invest  2,813  in Relx PLC ADR on September 27, 2024 and sell it today you would earn a total of  1,776  from holding Relx PLC ADR or generate 63.14% return on investment over 90 days.

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

Relx PLC ADR  vs.  Capital Clean Energy

Relx PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Capital Clean Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Clean Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Capital Clean is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Relx PLC and Capital Clean

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

The idea behind Relx PLC ADR and Capital Clean Energy 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.