Correlation Between Compagnie Financière and Next PLC

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

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

Diversification Opportunities for Compagnie Financière and Next PLC

0.27

Correlation Coefficient

Compagnie Financière  Next PLC

Modest diversification

The 3 months correlation between Compagnie and Next is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie Financire Richemont and Next PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next PLC ADR and Compagnie Financière 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 Compagnie Financire Richemont are associated (or correlated) with Next PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next PLC ADR has no effect on the direction of Compagnie Financière i.e., Compagnie Financière and Next PLC go up and down completely randomly.

Pair Corralation between Compagnie Financière and Next PLC

Assuming the 90 days horizon Compagnie Financire Richemont is expected to generate 2.06 times more return on investment than Next PLC. However, Compagnie Financière is 2.06 times more volatile than Next PLC ADR. It trades about 0.11 of its potential returns per unit of risk. Next PLC ADR is currently generating about 0.04 per unit of risk. If you would invest  15,438  in Compagnie Financire Richemont on December 20, 2024 and sell it today you would earn a total of  3,062  from holding Compagnie Financire Richemont or generate 19.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	84.75%
Values	Daily Returns

Compagnie Financire Richemont  vs.  Next PLC ADR

Compagnie Financière

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical indicators, Compagnie Financière reported solid returns over the last few months and may actually be approaching a breakup point.

Next PLC ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Next PLC ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Next PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compagnie Financière and Next PLC

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

The idea behind Compagnie Financire Richemont and Next PLC ADR 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.