Correlation Between USS and Inchcape Plc

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

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

Diversification Opportunities for USS and Inchcape Plc

0.6

Correlation Coefficient

USS  Inchcape Plc

Poor diversification

The 3 months correlation between USS and Inchcape is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding USS Co and Inchcape plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inchcape plc and USS 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 USS Co are associated (or correlated) with Inchcape Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inchcape plc has no effect on the direction of USS i.e., USS and Inchcape Plc go up and down completely randomly.

Pair Corralation between USS and Inchcape Plc

Assuming the 90 days horizon USS Co is expected to under-perform the Inchcape Plc. But the stock apears to be less risky and, when comparing its historical volatility, USS Co is 1.14 times less risky than Inchcape Plc. The stock trades about -0.12 of its potential returns per unit of risk. The Inchcape plc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  904.00  in Inchcape plc on September 23, 2024 and sell it today you would earn a total of  35.00  from holding Inchcape plc or generate 3.87% return on investment over 90 days.

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

USS Co  vs.  Inchcape plc

USS Co

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in USS Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, USS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Inchcape plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inchcape plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Inchcape Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with USS and Inchcape Plc

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

The idea behind USS Co and Inchcape 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.