Correlation Between Pexip Holding and Derwent London

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

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

Diversification Opportunities for Pexip Holding and Derwent London

0.16

Correlation Coefficient

Pexip Holding  Derwent London

Average diversification

The 3 months correlation between Pexip and Derwent is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Pexip Holding ASA and Derwent London PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Derwent London PLC and Pexip Holding 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 Pexip Holding ASA are associated (or correlated) with Derwent London. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Derwent London PLC has no effect on the direction of Pexip Holding i.e., Pexip Holding and Derwent London go up and down completely randomly.

Pair Corralation between Pexip Holding and Derwent London

Assuming the 90 days horizon Pexip Holding ASA is expected to generate 2.46 times more return on investment than Derwent London. However, Pexip Holding is 2.46 times more volatile than Derwent London PLC. It trades about 0.1 of its potential returns per unit of risk. Derwent London PLC is currently generating about -0.04 per unit of risk. If you would invest  213.00  in Pexip Holding ASA on February 4, 2024 and sell it today you would earn a total of  19.00  from holding Pexip Holding ASA or generate 8.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Pexip Holding ASA  vs.  Derwent London PLC

Pexip Holding ASA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pexip Holding ASA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pexip Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Derwent London PLC

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Derwent London PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Derwent London is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pexip Holding and Derwent London

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

The idea behind Pexip Holding ASA and Derwent London PLC 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.