Can any of the company-specific risk be diversified away by investing in both Marks Spencer and Plaza Retail 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 Marks Spencer and Plaza Retail into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marks Spencer Group and Plaza Retail REIT, you can compare the effects of market volatilities on Marks Spencer and Plaza Retail 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 Marks Spencer with a short position of Plaza Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marks Spencer and Plaza Retail.
Diversification Opportunities for Marks Spencer and Plaza Retail
The 3 months correlation between Marks and Plaza is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Marks Spencer Group and Plaza Retail REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plaza Retail REIT and Marks Spencer 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 Marks Spencer Group are associated (or correlated) with Plaza Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plaza Retail REIT has no effect on the direction of Marks Spencer i.e., Marks Spencer and Plaza Retail go up and down completely randomly.
Pair Corralation between Marks Spencer and Plaza Retail
Assuming the 90 days horizon Marks Spencer Group is expected to generate 0.67 times more return on investment than Plaza Retail. However, Marks Spencer Group is 1.5 times less risky than Plaza Retail. It trades about 0.08 of its potential returns per unit of risk. Plaza Retail REIT is currently generating about 0.01 per unit of risk. If you would invest 342.00 in Marks Spencer Group on March 6, 2024 and sell it today you would earn a total of 442.00 from holding Marks Spencer Group or generate 129.24% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Marks Spencer Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Marks Spencer showed solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Plaza Retail REIT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Plaza Retail is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.