Correlation Between Life Healthcare and Prosus NV

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

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

Diversification Opportunities for Life Healthcare and Prosus NV

0.41

Correlation Coefficient

Life Healthcare  Prosus NV

Very weak diversification

The 3 months correlation between Life and Prosus is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and Prosus NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus NV and Life Healthcare 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 Life Healthcare are associated (or correlated) with Prosus NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosus NV has no effect on the direction of Life Healthcare i.e., Life Healthcare and Prosus NV go up and down completely randomly.

Pair Corralation between Life Healthcare and Prosus NV

Assuming the 90 days trading horizon Life Healthcare is expected to under-perform the Prosus NV. In addition to that, Life Healthcare is 1.59 times more volatile than Prosus NV. It trades about -0.06 of its total potential returns per unit of risk. Prosus NV is currently generating about 0.17 per unit of volatility. If you would invest  7,210,000  in Prosus NV on September 24, 2024 and sell it today you would earn a total of  279,000  from holding Prosus NV or generate 3.87% return on investment over 90 days.

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

Life Healthcare  vs.  Prosus NV

Life Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

Prosus NV

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Prosus NV may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Life Healthcare and Prosus NV

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

The idea behind Life Healthcare and Prosus NV 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.