Correlation Between Scholastic and WPP PLC

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

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

Diversification Opportunities for Scholastic and WPP PLC

-0.05

Correlation Coefficient

Scholastic  WPP PLC

Good diversification

The 3 months correlation between Scholastic and WPP is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Scholastic 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 Scholastic 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 Scholastic 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 Scholastic i.e., Scholastic and WPP PLC go up and down completely randomly.

Pair Corralation between Scholastic and WPP PLC

Given the investment horizon of 90 days Scholastic is expected to under-perform the WPP PLC. In addition to that, Scholastic is 1.73 times more volatile than WPP PLC ADR. It trades about -0.03 of its total potential returns per unit of risk. WPP PLC ADR is currently generating about 0.01 per unit of volatility. If you would invest  4,948  in WPP PLC ADR on October 2, 2024 and sell it today you would earn a total of  192.00  from holding WPP PLC ADR or generate 3.88% return on investment over 90 days.

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

Scholastic  vs.  WPP PLC ADR

Scholastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

WPP PLC ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 2 (%) 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 Scholastic and WPP PLC

The main advantage of trading using opposite Scholastic and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scholastic 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 Scholastic 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.