Correlation Between RCS MediaGroup and WPP PLC

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

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

Diversification Opportunities for RCS MediaGroup and WPP PLC

0.58

Correlation Coefficient

RCS MediaGroup  WPP PLC

Very weak diversification

The 3 months correlation between RCS and WPP is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding RCS MediaGroup SpA and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and RCS MediaGroup 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 RCS MediaGroup SpA are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC ADR has no effect on the direction of RCS MediaGroup i.e., RCS MediaGroup and WPP PLC go up and down completely randomly.

Pair Corralation between RCS MediaGroup and WPP PLC

Assuming the 90 days horizon RCS MediaGroup is expected to generate 1.28 times less return on investment than WPP PLC. But when comparing it to its historical volatility, RCS MediaGroup SpA is 1.17 times less risky than WPP PLC. It trades about 0.07 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,624  in WPP PLC ADR on September 23, 2024 and sell it today you would earn a total of  605.00  from holding WPP PLC ADR or generate 13.08% return on investment over 90 days.

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

RCS MediaGroup SpA  vs.  WPP PLC ADR

RCS MediaGroup SpA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RCS MediaGroup SpA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, RCS MediaGroup may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WPP PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, WPP PLC is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with RCS MediaGroup and WPP PLC

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

The idea behind RCS MediaGroup SpA and WPP 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 Stocks Directory module to find actively traded stocks across global markets.