Correlation Between WESCO and Pearson PLC

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

By analyzing existing cross correlation between WESCO Distribution 725 and Pearson PLC ADR, you can compare the effects of market volatilities on WESCO and Pearson PLC 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 WESCO with a short position of Pearson PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of WESCO and Pearson PLC.

Diversification Opportunities for WESCO and Pearson PLC

-0.17

Correlation Coefficient

WESCO  Pearson PLC

Good diversification

The 3 months correlation between WESCO and Pearson is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding WESCO Distribution 725 and Pearson PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson PLC ADR and WESCO 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 WESCO Distribution 725 are associated (or correlated) with Pearson PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson PLC ADR has no effect on the direction of WESCO i.e., WESCO and Pearson PLC go up and down completely randomly.

Pair Corralation between WESCO and Pearson PLC

Assuming the 90 days trading horizon WESCO Distribution 725 is expected to under-perform the Pearson PLC. But the bond apears to be less risky and, when comparing its historical volatility, WESCO Distribution 725 is 4.99 times less risky than Pearson PLC. The bond trades about -0.04 of its potential returns per unit of risk. The Pearson PLC ADR is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,358  in Pearson PLC ADR on October 1, 2024 and sell it today you would earn a total of  263.00  from holding Pearson PLC ADR or generate 19.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

WESCO Distribution 725  vs.  Pearson PLC ADR

WESCO Distribution 725

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WESCO Distribution 725 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, WESCO is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pearson PLC ADR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pearson PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with WESCO and Pearson PLC

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

The idea behind WESCO Distribution 725 and Pearson PLC ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..