Correlation Between Relx PLC and Dolby Laboratories

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

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

Diversification Opportunities for Relx PLC and Dolby Laboratories

0.51

Correlation Coefficient

Relx PLC  Dolby Laboratories

Very weak diversification

The 3 months correlation between Relx and Dolby is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC ADR and Dolby Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dolby Laboratories and Relx 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 Relx PLC ADR are associated (or correlated) with Dolby Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dolby Laboratories has no effect on the direction of Relx PLC i.e., Relx PLC and Dolby Laboratories go up and down completely randomly.

Pair Corralation between Relx PLC and Dolby Laboratories

Given the investment horizon of 90 days Relx PLC ADR is expected to generate 0.84 times more return on investment than Dolby Laboratories. However, Relx PLC ADR is 1.19 times less risky than Dolby Laboratories. It trades about 0.08 of its potential returns per unit of risk. Dolby Laboratories is currently generating about 0.02 per unit of risk. If you would invest  2,733  in Relx PLC ADR on February 4, 2024 and sell it today you would earn a total of  1,483  from holding Relx PLC ADR or generate 54.26% return on investment over 90 days.

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

Relx PLC ADR  vs.  Dolby Laboratories

Relx PLC ADR

Risk-Adjusted Performance

3 of 100

Insignificant

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

Dolby Laboratories

Risk-Adjusted Performance

5 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dolby Laboratories are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Dolby Laboratories is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Relx PLC and Dolby Laboratories

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

The idea behind Relx PLC ADR and Dolby Laboratories 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..