Correlation Between Dentsu and Interpublic Group

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

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

Diversification Opportunities for Dentsu and Interpublic Group

0.01

Correlation Coefficient

Dentsu  Interpublic Group

Significant diversification

The 3 months correlation between Dentsu and Interpublic is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Dentsu Inc ADR and Interpublic Group of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interpublic Group and Dentsu 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 Dentsu Inc ADR are associated (or correlated) with Interpublic Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interpublic Group has no effect on the direction of Dentsu i.e., Dentsu and Interpublic Group go up and down completely randomly.

Pair Corralation between Dentsu and Interpublic Group

Assuming the 90 days horizon Dentsu Inc ADR is expected to generate 1.41 times more return on investment than Interpublic Group. However, Dentsu is 1.41 times more volatile than Interpublic Group of. It trades about -0.06 of its potential returns per unit of risk. Interpublic Group of is currently generating about -0.18 per unit of risk. If you would invest  2,790  in Dentsu Inc ADR on January 24, 2024 and sell it today you would lose (63.00) from holding Dentsu Inc ADR or give up 2.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Dentsu Inc ADR  vs.  Interpublic Group of

Dentsu Inc ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dentsu Inc ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dentsu is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Interpublic Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Interpublic Group of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Interpublic Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dentsu and Interpublic Group

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

The idea behind Dentsu Inc ADR and Interpublic Group of 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.