Correlation Between 3I Group and London Stock

Can any of the company-specific risk be diversified away by investing in both 3I Group and London Stock 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 3I Group and London Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 3I Group PLC and London Stock Exchange, you can compare the effects of market volatilities on 3I Group and London Stock 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 3I Group with a short position of London Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3I Group and London Stock.

Diversification Opportunities for 3I Group and London Stock

0.89

Correlation Coefficient

3I Group  London Stock

Very poor diversification

The 3 months correlation between III and London is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding 3I Group PLC and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange and 3I Group 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 3I Group PLC are associated (or correlated) with London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of 3I Group i.e., 3I Group and London Stock go up and down completely randomly.

Pair Corralation between 3I Group and London Stock

Assuming the 90 days trading horizon 3I Group is expected to generate 1.18 times less return on investment than London Stock. In addition to that, 3I Group is 1.76 times more volatile than London Stock Exchange. It trades about 0.09 of its total potential returns per unit of risk. London Stock Exchange is currently generating about 0.19 per unit of volatility. If you would invest  1,031,500  in London Stock Exchange on September 20, 2024 and sell it today you would earn a total of  113,500  from holding London Stock Exchange or generate 11.0% return on investment over 90 days.

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

3I Group PLC  vs.  London Stock Exchange

3I Group PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 3I Group PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, 3I Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

London Stock Exchange

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with 3I Group and London Stock

The main advantage of trading using opposite 3I Group and London Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3I Group position performs unexpectedly, London Stock 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 London Stock will offset losses from the drop in London Stock's long position.

The idea behind 3I Group PLC and London Stock Exchange 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.