Correlation Between Kellanova and Pearson PLC

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

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

Diversification Opportunities for Kellanova and Pearson PLC

0.5

Correlation Coefficient

Kellanova  Pearson PLC

Very weak diversification

The 3 months correlation between Kellanova and Pearson is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Kellanova and Pearson PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson PLC ADR and Kellanova 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 Kellanova are associated (or correlated) with Pearson PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson PLC ADR has no effect on the direction of Kellanova i.e., Kellanova and Pearson PLC go up and down completely randomly.

Pair Corralation between Kellanova and Pearson PLC

Taking into account the 90-day investment horizon Kellanova is expected to generate 0.18 times more return on investment than Pearson PLC. However, Kellanova is 5.7 times less risky than Pearson PLC. It trades about 0.21 of its potential returns per unit of risk. Pearson PLC ADR is currently generating about -0.05 per unit of risk. If you would invest  8,111  in Kellanova on October 27, 2024 and sell it today you would earn a total of  66.00  from holding Kellanova or generate 0.81% return on investment over 90 days.

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

Kellanova  vs.  Pearson PLC ADR

Kellanova

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kellanova are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent forward-looking signals, Kellanova is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pearson PLC ADR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pearson PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kellanova and Pearson PLC

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

The idea behind Kellanova and Pearson 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.