Correlation Between WPP PLC and Marchex

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

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

Diversification Opportunities for WPP PLC and Marchex

-0.44

Correlation Coefficient

WPP PLC  Marchex

Very good diversification

The 3 months correlation between WPP and Marchex is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding WPP PLC ADR and Marchex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marchex and WPP 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 WPP PLC ADR are associated (or correlated) with Marchex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marchex has no effect on the direction of WPP PLC i.e., WPP PLC and Marchex go up and down completely randomly.

Pair Corralation between WPP PLC and Marchex

Considering the 90-day investment horizon WPP PLC ADR is expected to generate 0.45 times more return on investment than Marchex. However, WPP PLC ADR is 2.2 times less risky than Marchex. It trades about 0.19 of its potential returns per unit of risk. Marchex is currently generating about -0.03 per unit of risk. If you would invest  4,561  in WPP PLC ADR on September 3, 2024 and sell it today you would earn a total of  906.00  from holding WPP PLC ADR or generate 19.86% return on investment over 90 days.

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

WPP PLC ADR  vs.  Marchex

WPP PLC ADR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Marchex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marchex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with WPP PLC and Marchex

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

The idea behind WPP PLC ADR and Marchex 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.