Correlation Between DS Smith and Flutter Entertainment

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

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

Diversification Opportunities for DS Smith and Flutter Entertainment

0.81

Correlation Coefficient

DS Smith  Flutter Entertainment

Very poor diversification

The 3 months correlation between SMDS and Flutter is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding DS Smith PLC and Flutter Entertainment PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flutter Entertainment PLC and DS Smith 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 DS Smith PLC are associated (or correlated) with Flutter Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flutter Entertainment PLC has no effect on the direction of DS Smith i.e., DS Smith and Flutter Entertainment go up and down completely randomly.

Pair Corralation between DS Smith and Flutter Entertainment

Assuming the 90 days trading horizon DS Smith PLC is expected to generate 1.15 times more return on investment than Flutter Entertainment. However, DS Smith is 1.15 times more volatile than Flutter Entertainment PLC. It trades about 0.13 of its potential returns per unit of risk. Flutter Entertainment PLC is currently generating about 0.13 per unit of risk. If you would invest  45,827  in DS Smith PLC on September 27, 2024 and sell it today you would earn a total of  8,823  from holding DS Smith PLC or generate 19.25% return on investment over 90 days.

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

DS Smith PLC  vs.  Flutter Entertainment PLC

DS Smith PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DS Smith PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, DS Smith unveiled solid returns over the last few months and may actually be approaching a breakup point.

Flutter Entertainment PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Flutter Entertainment PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Flutter Entertainment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DS Smith and Flutter Entertainment

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

The idea behind DS Smith PLC and Flutter Entertainment 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..