Correlation Between Relx PLC and 126650DF4

Can any of the company-specific risk be diversified away by investing in both Relx PLC and 126650DF4 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 126650DF4 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 CVS HEALTH P, you can compare the effects of market volatilities on Relx PLC and 126650DF4 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 126650DF4. Check out your portfolio center. Please also check ongoing floating volatility patterns of Relx PLC and 126650DF4.

Diversification Opportunities for Relx PLC and 126650DF4

0.18

Correlation Coefficient

Relx PLC  126650DF4

Average diversification

The 3 months correlation between Relx and 126650DF4 is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC ADR and CVS HEALTH P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVS HEALTH P 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 126650DF4. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVS HEALTH P has no effect on the direction of Relx PLC i.e., Relx PLC and 126650DF4 go up and down completely randomly.

Pair Corralation between Relx PLC and 126650DF4

Given the investment horizon of 90 days Relx PLC ADR is expected to generate 3.0 times more return on investment than 126650DF4. However, Relx PLC is 3.0 times more volatile than CVS HEALTH P. It trades about 0.05 of its potential returns per unit of risk. CVS HEALTH P is currently generating about -0.13 per unit of risk. If you would invest  4,589  in Relx PLC ADR on September 5, 2024 and sell it today you would earn a total of  159.00  from holding Relx PLC ADR or generate 3.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Relx PLC ADR  vs.  CVS HEALTH P

Relx PLC ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Relx PLC ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Relx PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CVS HEALTH P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CVS HEALTH P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 126650DF4 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Relx PLC and 126650DF4

The main advantage of trading using opposite Relx PLC and 126650DF4 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Relx PLC position performs unexpectedly, 126650DF4 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 126650DF4 will offset losses from the drop in 126650DF4's long position.

The idea behind Relx PLC ADR and CVS HEALTH P 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.