Correlation Between WPP PLC and Lincoln Educational
Can any of the company-specific risk be diversified away by investing in both WPP PLC and Lincoln Educational 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 Lincoln Educational 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 Lincoln Educational Services, you can compare the effects of market volatilities on WPP PLC and Lincoln Educational 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 Lincoln Educational. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and Lincoln Educational.
Diversification Opportunities for WPP PLC and Lincoln Educational
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between WPP and Lincoln is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Lincoln Educational Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Educational 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 Lincoln Educational. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Educational has no effect on the direction of WPP PLC i.e., WPP PLC and Lincoln Educational go up and down completely randomly.
Pair Corralation between WPP PLC and Lincoln Educational
Considering the 90-day investment horizon WPP PLC is expected to generate 11.12 times less return on investment than Lincoln Educational. But when comparing it to its historical volatility, WPP PLC ADR is 1.69 times less risky than Lincoln Educational. It trades about 0.01 of its potential returns per unit of risk. Lincoln Educational Services is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 628.00 in Lincoln Educational Services on October 2, 2024 and sell it today you would earn a total of 954.00 from holding Lincoln Educational Services or generate 151.91% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
WPP PLC ADR vs. Lincoln Educational Services
Performance |
Timeline |
WPP PLC ADR |
Lincoln Educational |
WPP PLC and Lincoln Educational Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with WPP PLC and Lincoln Educational
The main advantage of trading using opposite WPP PLC and Lincoln Educational positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WPP PLC position performs unexpectedly, Lincoln Educational 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 Lincoln Educational will offset losses from the drop in Lincoln Educational's long position.The idea behind WPP PLC ADR and Lincoln Educational Services 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.Lincoln Educational vs. Vasta Platform | Lincoln Educational vs. Laureate Education | Lincoln Educational vs. American Public Education | Lincoln Educational vs. Adtalem Global Education |
Check out your portfolio center.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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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