Correlation Between Software Acquisition and WPP PLC

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

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

Diversification Opportunities for Software Acquisition and WPP PLC

0.09

Correlation Coefficient

Software Acquisition  WPP PLC

Significant diversification

The 3 months correlation between Software and WPP is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Software Acquisition Group 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 Software Acquisition 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 Software Acquisition Group 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 Software Acquisition i.e., Software Acquisition and WPP PLC go up and down completely randomly.

Pair Corralation between Software Acquisition and WPP PLC

Given the investment horizon of 90 days Software Acquisition Group is expected to generate 2.15 times more return on investment than WPP PLC. However, Software Acquisition is 2.15 times more volatile than WPP PLC ADR. It trades about 0.02 of its potential returns per unit of risk. WPP PLC ADR is currently generating about -0.16 per unit of risk. If you would invest  95.00  in Software Acquisition Group on December 27, 2024 and sell it today you would lose (2.00) from holding Software Acquisition Group or give up 2.11% of portfolio value over 90 days.

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

Software Acquisition Group  vs.  WPP PLC ADR

Software Acquisition

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Software Acquisition Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Software Acquisition may actually be approaching a critical reversion point that can send shares even higher in April 2025.

WPP PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days WPP PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Software Acquisition and WPP PLC

The main advantage of trading using opposite Software Acquisition and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Software Acquisition 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 Software Acquisition Group 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.