Correlation Between Derwent London and Blue Star

Can any of the company-specific risk be diversified away by investing in both Derwent London and Blue Star 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 Derwent London and Blue Star into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Derwent London PLC and Blue Star Capital, you can compare the effects of market volatilities on Derwent London and Blue Star 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 Derwent London with a short position of Blue Star. Check out your portfolio center. Please also check ongoing floating volatility patterns of Derwent London and Blue Star.

Diversification Opportunities for Derwent London and Blue Star

0.26

Correlation Coefficient

Derwent London  Blue Star

Modest diversification

The 3 months correlation between Derwent and Blue is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Derwent London PLC and Blue Star Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Star Capital and Derwent London 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 Derwent London PLC are associated (or correlated) with Blue Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Star Capital has no effect on the direction of Derwent London i.e., Derwent London and Blue Star go up and down completely randomly.

Pair Corralation between Derwent London and Blue Star

Assuming the 90 days trading horizon Derwent London PLC is expected to under-perform the Blue Star. But the stock apears to be less risky and, when comparing its historical volatility, Derwent London PLC is 6.94 times less risky than Blue Star. The stock trades about -0.27 of its potential returns per unit of risk. The Blue Star Capital is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Blue Star Capital on September 20, 2024 and sell it today you would lose (0.25) from holding Blue Star Capital or give up 12.5% of portfolio value over 90 days.

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

Derwent London PLC  vs.  Blue Star Capital

Derwent London PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Derwent London PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Blue Star Capital

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Star Capital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Blue Star may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Derwent London and Blue Star

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

The idea behind Derwent London PLC and Blue Star Capital 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.