Correlation Between Burberry Group and Prada SpA

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

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

Diversification Opportunities for Burberry Group and Prada SpA

0.53

Correlation Coefficient

Burberry Group  Prada SpA

Very weak diversification

The 3 months correlation between Burberry and Prada is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Burberry Group Plc and Prada SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prada SpA and Burberry 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 Burberry Group Plc are associated (or correlated) with Prada SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prada SpA has no effect on the direction of Burberry Group i.e., Burberry Group and Prada SpA go up and down completely randomly.

Pair Corralation between Burberry Group and Prada SpA

Assuming the 90 days horizon Burberry Group Plc is expected to under-perform the Prada SpA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Burberry Group Plc is 1.22 times less risky than Prada SpA. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Prada SpA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  763.00  in Prada SpA on December 30, 2024 and sell it today you would lose (61.00) from holding Prada SpA or give up 7.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Burberry Group Plc  vs.  Prada SpA

Burberry Group Plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Burberry Group Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Prada SpA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prada SpA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Prada SpA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Burberry Group and Prada SpA

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

The idea behind Burberry Group Plc and Prada SpA 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.