Correlation Between London Stock and Moodys

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

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

Diversification Opportunities for London Stock and Moodys

0.53

Correlation Coefficient

London Stock  Moodys

Very weak diversification

The 3 months correlation between London and Moodys is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and Moodys in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moodys and London Stock 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 London Stock Exchange are associated (or correlated) with Moodys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moodys has no effect on the direction of London Stock i.e., London Stock and Moodys go up and down completely randomly.

Pair Corralation between London Stock and Moodys

Assuming the 90 days horizon London Stock Exchange is expected to generate 1.28 times more return on investment than Moodys. However, London Stock is 1.28 times more volatile than Moodys. It trades about 0.07 of its potential returns per unit of risk. Moodys is currently generating about -0.06 per unit of risk. If you would invest  13,650  in London Stock Exchange on September 20, 2024 and sell it today you would earn a total of  850.00  from holding London Stock Exchange or generate 6.23% return on investment over 90 days.

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

London Stock Exchange  vs.  Moodys

London Stock Exchange

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Moodys

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moodys has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Moodys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with London Stock and Moodys

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

The idea behind London Stock Exchange and Moodys 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.