Correlation Between WPP PLC and Omnicom

Can any of the company-specific risk be diversified away by investing in both WPP PLC and Omnicom 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 Omnicom 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 Omnicom Group, you can compare the effects of market volatilities on WPP PLC and Omnicom 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 Omnicom. Check out your portfolio center. Please also check ongoing floating volatility patterns of WPP PLC and Omnicom.

Diversification Opportunities for WPP PLC and Omnicom

0.62

Correlation Coefficient

WPP PLC  Omnicom

Poor diversification

The 3 months correlation between WPP and Omnicom is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Omnicom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Omnicom Group 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 Omnicom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Omnicom Group has no effect on the direction of WPP PLC i.e., WPP PLC and Omnicom go up and down completely randomly.

Pair Corralation between WPP PLC and Omnicom

Considering the 90-day investment horizon WPP PLC ADR is expected to under-perform the Omnicom. But the stock apears to be less risky and, when comparing its historical volatility, WPP PLC ADR is 1.4 times less risky than Omnicom. The stock trades about -0.03 of its potential returns per unit of risk. The Omnicom Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  10,170  in Omnicom Group on August 30, 2024 and sell it today you would earn a total of  265.00  from holding Omnicom Group or generate 2.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

WPP PLC ADR  vs.  Omnicom Group

WPP PLC ADR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Omnicom Group

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Omnicom Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Omnicom is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with WPP PLC and Omnicom

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

The idea behind WPP PLC ADR and Omnicom Group 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.