Correlation Between Boyd Gaming and WPP PLC

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

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

Diversification Opportunities for Boyd Gaming and WPP PLC

0.87

Correlation Coefficient

Boyd Gaming  WPP PLC

Very poor diversification

The 3 months correlation between Boyd and WPP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Boyd Gaming and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and Boyd Gaming 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 Boyd Gaming 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 ADR has no effect on the direction of Boyd Gaming i.e., Boyd Gaming and WPP PLC go up and down completely randomly.

Pair Corralation between Boyd Gaming and WPP PLC

Considering the 90-day investment horizon Boyd Gaming is expected to generate 2.7 times less return on investment than WPP PLC. But when comparing it to its historical volatility, Boyd Gaming is 1.05 times less risky than WPP PLC. It trades about 0.15 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  5,161  in WPP PLC ADR on September 18, 2024 and sell it today you would earn a total of  398.00  from holding WPP PLC ADR or generate 7.71% return on investment over 90 days.

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

Boyd Gaming  vs.  WPP PLC ADR

Boyd Gaming

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Boyd Gaming are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Boyd Gaming exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 fragile basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boyd Gaming and WPP PLC

The main advantage of trading using opposite Boyd Gaming and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boyd Gaming 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 Boyd Gaming and WPP PLC ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.