Correlation Between Torm PLC and JD Sports

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

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

Diversification Opportunities for Torm PLC and JD Sports

0.26

Correlation Coefficient

Torm PLC  JD Sports

Modest diversification

The 3 months correlation between Torm and JDDSF is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Torm PLC Class and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion and Torm 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 Torm PLC Class are associated (or correlated) with JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Torm PLC i.e., Torm PLC and JD Sports go up and down completely randomly.

Pair Corralation between Torm PLC and JD Sports

Given the investment horizon of 90 days Torm PLC Class is expected to generate 1.15 times more return on investment than JD Sports. However, Torm PLC is 1.15 times more volatile than JD Sports Fashion. It trades about 0.02 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.17 per unit of risk. If you would invest  1,822  in Torm PLC Class on December 25, 2024 and sell it today you would earn a total of  20.00  from holding Torm PLC Class or generate 1.1% return on investment over 90 days.

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

Torm PLC Class  vs.  JD Sports Fashion

Torm PLC Class

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Torm PLC Class are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Torm PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

JD Sports Fashion

Risk-Adjusted Performance

Very Weak

Over the last 90 days JD Sports Fashion 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 basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Torm PLC and JD Sports

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

The idea behind Torm PLC Class and JD Sports Fashion 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.