Correlation Between Digital Brand and WPP Plc

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

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

Diversification Opportunities for Digital Brand and WPP Plc

-0.32

Correlation Coefficient

Digital Brand  WPP Plc

Very good diversification

The 3 months correlation between Digital and WPP is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Digital Brand Media and WPP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP plc and Digital Brand 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 Digital Brand Media are associated (or correlated) with WPP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WPP plc has no effect on the direction of Digital Brand i.e., Digital Brand and WPP Plc go up and down completely randomly.

Pair Corralation between Digital Brand and WPP Plc

Given the investment horizon of 90 days Digital Brand Media is expected to generate 6.84 times more return on investment than WPP Plc. However, Digital Brand is 6.84 times more volatile than WPP plc. It trades about 0.18 of its potential returns per unit of risk. WPP plc is currently generating about 0.02 per unit of risk. If you would invest  0.25  in Digital Brand Media on February 11, 2024 and sell it today you would earn a total of  0.35  from holding Digital Brand Media or generate 140.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Digital Brand Media  vs.  WPP plc

Digital Brand Media

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Brand Media are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent primary indicators, Digital Brand displayed solid returns over the last few months and may actually be approaching a breakup point.

WPP plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WPP plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, WPP Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Digital Brand and WPP Plc

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

The idea behind Digital Brand Media and WPP 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.