Correlation Between WPP PLC and Lancashire Holdings

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

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

Diversification Opportunities for WPP PLC and Lancashire Holdings

-0.29

Correlation Coefficient

WPP PLC  Lancashire Holdings

Very good diversification

The 3 months correlation between WPP and Lancashire is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Lancashire Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings and WPP 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 WPP PLC ADR are associated (or correlated) with Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of WPP PLC i.e., WPP PLC and Lancashire Holdings go up and down completely randomly.

Pair Corralation between WPP PLC and Lancashire Holdings

Considering the 90-day investment horizon WPP PLC ADR is expected to under-perform the Lancashire Holdings. But the stock apears to be less risky and, when comparing its historical volatility, WPP PLC ADR is 1.05 times less risky than Lancashire Holdings. The stock trades about -0.21 of its potential returns per unit of risk. The Lancashire Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  771.00  in Lancashire Holdings on October 21, 2024 and sell it today you would earn a total of  8.00  from holding Lancashire Holdings or generate 1.04% return on investment over 90 days.

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

WPP PLC ADR  vs.  Lancashire Holdings

WPP PLC ADR

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Lancashire Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lancashire Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's technical indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with WPP PLC and Lancashire Holdings

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

The idea behind WPP PLC ADR and Lancashire Holdings 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.