Correlation Between Zurich Insurance and WPP PLC

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

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

Diversification Opportunities for Zurich Insurance and WPP PLC

0.66

Correlation Coefficient

Zurich Insurance  WPP PLC

Poor diversification

The 3 months correlation between Zurich and WPP is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Zurich Insurance Group and WPP PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC and Zurich Insurance 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 Zurich Insurance Group are associated (or correlated) with WPP PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP PLC has no effect on the direction of Zurich Insurance i.e., Zurich Insurance and WPP PLC go up and down completely randomly.

Pair Corralation between Zurich Insurance and WPP PLC

Assuming the 90 days trading horizon Zurich Insurance Group is expected to generate 0.99 times more return on investment than WPP PLC. However, Zurich Insurance Group is 1.01 times less risky than WPP PLC. It trades about 0.06 of its potential returns per unit of risk. WPP PLC is currently generating about 0.0 per unit of risk. If you would invest  1,959  in Zurich Insurance Group on October 11, 2024 and sell it today you would earn a total of  981.00  from holding Zurich Insurance Group or generate 50.08% return on investment over 90 days.

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

Zurich Insurance Group  vs.  WPP PLC

Zurich Insurance

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zurich Insurance Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Zurich Insurance may actually be approaching a critical reversion point that can send shares even higher in February 2025.

WPP PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WPP PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WPP PLC is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Zurich Insurance and WPP PLC

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

The idea behind Zurich Insurance Group and WPP 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.