Correlation Between Associated British and Draper Esprit

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

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

Diversification Opportunities for Associated British and Draper Esprit

0.13

Correlation Coefficient

Associated British  Draper Esprit

Average diversification

The 3 months correlation between Associated and Draper is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Associated British Foods and Draper Esprit PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Draper Esprit PLC and Associated British 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 Associated British Foods are associated (or correlated) with Draper Esprit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Draper Esprit PLC has no effect on the direction of Associated British i.e., Associated British and Draper Esprit go up and down completely randomly.

Pair Corralation between Associated British and Draper Esprit

Assuming the 90 days trading horizon Associated British is expected to generate 11.58 times less return on investment than Draper Esprit. But when comparing it to its historical volatility, Associated British Foods is 1.51 times less risky than Draper Esprit. It trades about 0.02 of its potential returns per unit of risk. Draper Esprit PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  27,620  in Draper Esprit PLC on April 24, 2025 and sell it today you would earn a total of  6,980  from holding Draper Esprit PLC or generate 25.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Associated British Foods  vs.  Draper Esprit PLC

Associated British Foods

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Associated British Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Associated British is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Draper Esprit PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Draper Esprit PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Draper Esprit unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Associated British and Draper Esprit

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

The idea behind Associated British Foods and Draper Esprit 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.