Correlation Between Marchex and WPP PLC

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

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

Diversification Opportunities for Marchex and WPP PLC

-0.61

Correlation Coefficient

Marchex  WPP PLC

Excellent diversification

The 3 months correlation between Marchex and WPP is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Marchex and WPP PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WPP PLC ADR and Marchex 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 Marchex 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 ADR has no effect on the direction of Marchex i.e., Marchex and WPP PLC go up and down completely randomly.

Pair Corralation between Marchex and WPP PLC

Given the investment horizon of 90 days Marchex is expected to generate 2.24 times more return on investment than WPP PLC. However, Marchex is 2.24 times more volatile than WPP PLC ADR. It trades about 0.09 of its potential returns per unit of risk. WPP PLC ADR is currently generating about 0.06 per unit of risk. If you would invest  127.00  in Marchex on August 9, 2024 and sell it today you would earn a total of  48.00  from holding Marchex or generate 37.8% return on investment over 90 days.

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

Marchex  vs.  WPP PLC ADR

Marchex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marchex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Marchex is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

WPP PLC ADR

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WPP PLC ADR are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, WPP PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Marchex and WPP PLC

The main advantage of trading using opposite Marchex and WPP PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marchex 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 Marchex and WPP PLC ADR 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.