Correlation Between Vodafone Group and Caffyns PLC

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

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

Diversification Opportunities for Vodafone Group and Caffyns PLC

0.01

Correlation Coefficient

Vodafone Group  Caffyns PLC

Significant diversification

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

Pair Corralation between Vodafone Group and Caffyns PLC

Assuming the 90 days trading horizon Vodafone Group PLC is expected to generate 1.13 times more return on investment than Caffyns PLC. However, Vodafone Group is 1.13 times more volatile than Caffyns PLC. It trades about -0.03 of its potential returns per unit of risk. Caffyns PLC is currently generating about -0.05 per unit of risk. If you would invest  7,643  in Vodafone Group PLC on September 1, 2024 and sell it today you would lose (555.00) from holding Vodafone Group PLC or give up 7.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.23%
Values	Daily Returns

Vodafone Group PLC  vs.  Caffyns PLC

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Vodafone Group is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Caffyns PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caffyns PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caffyns PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vodafone Group and Caffyns PLC

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

The idea behind Vodafone Group PLC and Caffyns 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.