Can any of the company-specific risk be diversified away by investing in both Boohoo PLC and Etsy 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 Boohoo PLC and Etsy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BoohooCom PLC ADR and Etsy Inc, you can compare the effects of market volatilities on Boohoo PLC and Etsy 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 Boohoo PLC with a short position of Etsy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boohoo PLC and Etsy.
Diversification Opportunities for Boohoo PLC and Etsy
The 3 months correlation between Boohoo and Etsy is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding BoohooCom PLC ADR and Etsy Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Etsy Inc and Boohoo 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 BoohooCom PLC ADR are associated (or correlated) with Etsy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Etsy Inc has no effect on the direction of Boohoo PLC i.e., Boohoo PLC and Etsy go up and down completely randomly.
Assuming the 90 days horizon BoohooCom PLC ADR is expected to generate 0.28 times more return on investment than Etsy. However, BoohooCom PLC ADR is 3.54 times less risky than Etsy. It trades about 0.12 of its potential returns per unit of risk. Etsy Inc is currently generating about -0.02 per unit of risk. If you would invest 843.00 in BoohooCom PLC ADR on March 6, 2024 and sell it today you would earn a total of 48.00 from holding BoohooCom PLC ADR or generate 5.69% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in BoohooCom PLC ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Boohoo PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Etsy Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Etsy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.