Correlation Between M Winkworth and Derwent London

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

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

Diversification Opportunities for M Winkworth and Derwent London

-0.31

Correlation Coefficient

M Winkworth  Derwent London

Very good diversification

The 3 months correlation between WINK and Derwent is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding M Winkworth PLC and Derwent London PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Derwent London PLC and M Winkworth 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 M Winkworth PLC are associated (or correlated) with Derwent London. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Derwent London PLC has no effect on the direction of M Winkworth i.e., M Winkworth and Derwent London go up and down completely randomly.

Pair Corralation between M Winkworth and Derwent London

Assuming the 90 days trading horizon M Winkworth PLC is expected to generate 1.4 times more return on investment than Derwent London. However, M Winkworth is 1.4 times more volatile than Derwent London PLC. It trades about 0.03 of its potential returns per unit of risk. Derwent London PLC is currently generating about -0.07 per unit of risk. If you would invest  19,178  in M Winkworth PLC on December 22, 2024 and sell it today you would earn a total of  572.00  from holding M Winkworth PLC or generate 2.98% return on investment over 90 days.

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

M Winkworth PLC  vs.  Derwent London PLC

M Winkworth PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in M Winkworth PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, M Winkworth is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Derwent London PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Derwent London PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with M Winkworth and Derwent London

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

The idea behind M Winkworth PLC and Derwent London 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .