Correlation Between Weir Group and ITM Power

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

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

Diversification Opportunities for Weir Group and ITM Power

-0.68

Correlation Coefficient

Weir Group  ITM Power

Excellent diversification

The 3 months correlation between Weir and ITM is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Weir Group PLC and ITM Power Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITM Power Plc and Weir Group 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 Weir Group PLC are associated (or correlated) with ITM Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITM Power Plc has no effect on the direction of Weir Group i.e., Weir Group and ITM Power go up and down completely randomly.

Pair Corralation between Weir Group and ITM Power

Assuming the 90 days horizon Weir Group PLC is expected to generate 0.37 times more return on investment than ITM Power. However, Weir Group PLC is 2.71 times less risky than ITM Power. It trades about 0.12 of its potential returns per unit of risk. ITM Power Plc is currently generating about -0.05 per unit of risk. If you would invest  1,374  in Weir Group PLC on December 27, 2024 and sell it today you would earn a total of  180.00  from holding Weir Group PLC or generate 13.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

Weir Group PLC  vs.  ITM Power Plc

Weir Group PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Weir Group PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Weir Group showed solid returns over the last few months and may actually be approaching a breakup point.

ITM Power Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days ITM Power Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 Weir Group and ITM Power

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

The idea behind Weir Group PLC and ITM Power 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.