Correlation Between Digital Locations and Travis Perkins

Can any of the company-specific risk be diversified away by investing in both Digital Locations and Travis Perkins 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 Digital Locations and Travis Perkins into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Digital Locations and Travis Perkins

0.48

Correlation Coefficient

Digital Locations  Travis Perkins

Very weak diversification

The 3 months correlation between Digital and Travis is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Digital Locations and Travis Perkins PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Travis Perkins PLC and Digital Locations 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 Digital Locations are associated (or correlated) with Travis Perkins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Travis Perkins PLC has no effect on the direction of Digital Locations i.e., Digital Locations and Travis Perkins go up and down completely randomly.

Pair Corralation between Digital Locations and Travis Perkins

Given the investment horizon of 90 days Digital Locations is expected to generate 6.3 times more return on investment than Travis Perkins. However, Digital Locations is 6.3 times more volatile than Travis Perkins PLC. It trades about 0.01 of its potential returns per unit of risk. Travis Perkins PLC is currently generating about -0.1 per unit of risk. If you would invest  0.08  in Digital Locations on September 12, 2024 and sell it today you would lose (0.03) from holding Digital Locations or give up 37.5% of portfolio value over 90 days.

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

Digital Locations  vs.  Travis Perkins PLC

Digital Locations

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Locations are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Digital Locations exhibited solid returns over the last few months and may actually be approaching a breakup point.

Travis Perkins PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Travis Perkins PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's forward-looking signals remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Digital Locations and Travis Perkins

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

The idea behind Digital Locations and Travis Perkins 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.