Correlation Between Trainline Plc and London Stock

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

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

Diversification Opportunities for Trainline Plc and London Stock

0.89

Correlation Coefficient

Trainline Plc  London Stock

Very poor diversification

The 3 months correlation between Trainline and London is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Trainline 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 Trainline 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 Trainline 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 Trainline Plc i.e., Trainline Plc and London Stock go up and down completely randomly.

Pair Corralation between Trainline Plc and London Stock

Assuming the 90 days trading horizon Trainline Plc is expected to generate 2.18 times more return on investment than London Stock. However, Trainline Plc is 2.18 times more volatile than London Stock Exchange. It trades about 0.21 of its potential returns per unit of risk. London Stock Exchange is currently generating about 0.16 per unit of risk. If you would invest  33,120  in Trainline Plc on September 23, 2024 and sell it today you would earn a total of  9,800  from holding Trainline Plc or generate 29.59% return on investment over 90 days.

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

Trainline Plc  vs.  London Stock Exchange

Trainline Plc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trainline Plc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Trainline Plc exhibited solid returns over the last few months and may actually be approaching a breakup point.

London Stock Exchange

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 12 (%) 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 Trainline Plc and London Stock

The main advantage of trading using opposite Trainline Plc and London Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Trainline Plc 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 Trainline 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.