Correlation Between Centrica PLC and SoftBank Group

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

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

Diversification Opportunities for Centrica PLC and SoftBank Group

0.02

Correlation Coefficient

Centrica PLC  SoftBank Group

Significant diversification

The 3 months correlation between Centrica and SoftBank is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Centrica PLC and SoftBank Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftBank Group Corp and Centrica 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 Centrica PLC are associated (or correlated) with SoftBank Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftBank Group Corp has no effect on the direction of Centrica PLC i.e., Centrica PLC and SoftBank Group go up and down completely randomly.

Pair Corralation between Centrica PLC and SoftBank Group

Assuming the 90 days trading horizon Centrica PLC is expected to generate 44.94 times more return on investment than SoftBank Group. However, Centrica PLC is 44.94 times more volatile than SoftBank Group Corp. It trades about 0.11 of its potential returns per unit of risk. SoftBank Group Corp is currently generating about 0.02 per unit of risk. If you would invest  11,731  in Centrica PLC on September 21, 2024 and sell it today you would earn a total of  764.00  from holding Centrica PLC or generate 6.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	66.15%
Values	Daily Returns

Centrica PLC  vs.  SoftBank Group Corp

Centrica PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Centrica PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Centrica PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

SoftBank Group Corp

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SoftBank Group Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SoftBank Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Centrica PLC and SoftBank Group

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

The idea behind Centrica PLC and SoftBank Group Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.