Correlation Between RTL Group and ITV PLC

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

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

Diversification Opportunities for RTL Group and ITV PLC

0.76

Correlation Coefficient

RTL Group  ITV PLC

Poor diversification

The 3 months correlation between RTL and ITV is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding RTL Group SA and ITV PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITV PLC ADR and RTL Group 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 RTL Group SA are associated (or correlated) with ITV PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITV PLC ADR has no effect on the direction of RTL Group i.e., RTL Group and ITV PLC go up and down completely randomly.

Pair Corralation between RTL Group and ITV PLC

Assuming the 90 days horizon RTL Group SA is expected to under-perform the ITV PLC. But the pink sheet apears to be less risky and, when comparing its historical volatility, RTL Group SA is 1.58 times less risky than ITV PLC. The pink sheet trades about -0.15 of its potential returns per unit of risk. The ITV PLC ADR is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,009  in ITV PLC ADR on September 1, 2024 and sell it today you would lose (107.00) from holding ITV PLC ADR or give up 10.6% of portfolio value over 90 days.

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

RTL Group SA  vs.  ITV PLC ADR

RTL Group SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RTL Group SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

ITV PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ITV PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with RTL Group and ITV PLC

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

The idea behind RTL Group SA and ITV PLC ADR 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.