Correlation Between Compagnie Financière and Prada SpA

Can any of the company-specific risk be diversified away by investing in both Compagnie Financière 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 Compagnie Financière and Prada SpA 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 Prada SpA, you can compare the effects of market volatilities on Compagnie Financière 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 Compagnie Financière with a short position of Prada SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie Financière and Prada SpA.

Diversification Opportunities for Compagnie Financière and Prada SpA

0.39

Correlation Coefficient

Compagnie Financière  Prada SpA

Weak diversification

The 3 months correlation between Compagnie and Prada is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie Financire Richemont and Prada SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prada SpA 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 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 Compagnie Financière i.e., Compagnie Financière and Prada SpA go up and down completely randomly.

Pair Corralation between Compagnie Financière and Prada SpA

Assuming the 90 days horizon Compagnie Financire Richemont is expected to generate 0.82 times more return on investment than Prada SpA. However, Compagnie Financire Richemont is 1.22 times less risky than Prada SpA. It trades about 0.1 of its potential returns per unit of risk. Prada SpA is currently generating about -0.02 per unit of risk. If you would invest  15,556  in Compagnie Financire Richemont on December 30, 2024 and sell it today you would earn a total of  2,554  from holding Compagnie Financire Richemont or generate 16.42% return on investment over 90 days.

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

Compagnie Financire Richemont  vs.  Prada SpA

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 7 (%) 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.

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 Compagnie Financière and Prada SpA

The main advantage of trading using opposite Compagnie Financière and Prada SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compagnie Financière 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 Compagnie Financire Richemont 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.