Correlation Between Relx PLC and DGB Group

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

By analyzing existing cross correlation between Relx PLC and DGB Group NV, you can compare the effects of market volatilities on Relx PLC and DGB Group 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 DGB Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Relx PLC and DGB Group.

Diversification Opportunities for Relx PLC and DGB Group

0.73

Correlation Coefficient

Relx PLC  DGB Group

Poor diversification

The 3 months correlation between Relx and DGB is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC and DGB Group NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DGB Group NV 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 are associated (or correlated) with DGB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DGB Group NV has no effect on the direction of Relx PLC i.e., Relx PLC and DGB Group go up and down completely randomly.

Pair Corralation between Relx PLC and DGB Group

Assuming the 90 days trading horizon Relx PLC is expected to generate 0.24 times more return on investment than DGB Group. However, Relx PLC is 4.25 times less risky than DGB Group. It trades about 0.12 of its potential returns per unit of risk. DGB Group NV is currently generating about 0.02 per unit of risk. If you would invest  2,484  in Relx PLC on September 20, 2024 and sell it today you would earn a total of  2,034  from holding Relx PLC or generate 81.88% return on investment over 90 days.

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

Relx PLC  vs.  DGB Group NV

Relx PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Relx PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Relx PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

DGB Group NV

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DGB Group NV are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, DGB Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Relx PLC and DGB Group

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

The idea behind Relx PLC and DGB Group NV 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.