Correlation Between Relx PLC and Ross Stores

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

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

Diversification Opportunities for Relx PLC and Ross Stores

0.42

Correlation Coefficient

Relx PLC  Ross Stores

Very weak diversification

The 3 months correlation between Relx and Ross is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC ADR and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores and Relx 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 Relx PLC ADR are associated (or correlated) with Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Relx PLC i.e., Relx PLC and Ross Stores go up and down completely randomly.

Pair Corralation between Relx PLC and Ross Stores

Given the investment horizon of 90 days Relx PLC ADR is expected to under-perform the Ross Stores. But the stock apears to be less risky and, when comparing its historical volatility, Relx PLC ADR is 1.32 times less risky than Ross Stores. The stock trades about -0.05 of its potential returns per unit of risk. The Ross Stores is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  15,395  in Ross Stores on September 20, 2024 and sell it today you would lose (310.00) from holding Ross Stores or give up 2.01% of portfolio value over 90 days.

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

Relx PLC ADR  vs.  Ross Stores

Relx PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Relx PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Relx PLC is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Ross Stores

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ross Stores is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Relx PLC and Ross Stores

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

The idea behind Relx PLC ADR and Ross Stores 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.