Correlation Between Shell PLC and Relx PLC

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

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

Diversification Opportunities for Shell PLC and Relx PLC

0.06

Correlation Coefficient

Shell PLC  Relx PLC

Significant diversification

The 3 months correlation between Shell and Relx is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and Relx PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC and Shell 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 Shell PLC are associated (or correlated) with Relx PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relx PLC has no effect on the direction of Shell PLC i.e., Shell PLC and Relx PLC go up and down completely randomly.

Pair Corralation between Shell PLC and Relx PLC

Assuming the 90 days trading horizon Shell PLC is expected to generate 7.11 times less return on investment than Relx PLC. But when comparing it to its historical volatility, Shell PLC is 1.0 times less risky than Relx PLC. It trades about 0.01 of its potential returns per unit of risk. Relx PLC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,322  in Relx PLC on September 17, 2024 and sell it today you would earn a total of  170.00  from holding Relx PLC or generate 3.93% return on investment over 90 days.

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

Shell PLC  vs.  Relx PLC

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Relx PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Relx PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Relx PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Shell PLC and Relx PLC

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

The idea behind Shell PLC and Relx PLC 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.