Correlation Between Ferguson Plc and Electrocomponents

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

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

Diversification Opportunities for Ferguson Plc and Electrocomponents

-0.49

Correlation Coefficient

Ferguson Plc  Electrocomponents

Very good diversification

The 3 months correlation between Ferguson and Electrocomponents is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ferguson Plc and Electrocomponents plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electrocomponents plc and Ferguson Plc 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 Ferguson Plc are associated (or correlated) with Electrocomponents. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electrocomponents plc has no effect on the direction of Ferguson Plc i.e., Ferguson Plc and Electrocomponents go up and down completely randomly.

Pair Corralation between Ferguson Plc and Electrocomponents

Given the investment horizon of 90 days Ferguson Plc is expected to generate 1.21 times more return on investment than Electrocomponents. However, Ferguson Plc is 1.21 times more volatile than Electrocomponents plc. It trades about -0.01 of its potential returns per unit of risk. Electrocomponents plc is currently generating about -0.16 per unit of risk. If you would invest  21,472  in Ferguson Plc on February 2, 2024 and sell it today you would lose (191.50) from holding Ferguson Plc or give up 0.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.67%
Values	Daily Returns

Ferguson Plc  vs.  Electrocomponents plc

Ferguson Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ferguson Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Ferguson Plc may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Electrocomponents plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electrocomponents plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Ferguson Plc and Electrocomponents

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

The idea behind Ferguson Plc and Electrocomponents 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.