Correlation Between Meta Platforms and Prosus

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

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

Diversification Opportunities for Meta Platforms and Prosus

0.79

Correlation Coefficient

Meta Platforms  Prosus

Poor diversification

The 3 months correlation between Meta and Prosus is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Prosus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus and Meta Platforms 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 Meta Platforms are associated (or correlated) with Prosus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosus has no effect on the direction of Meta Platforms i.e., Meta Platforms and Prosus go up and down completely randomly.

Pair Corralation between Meta Platforms and Prosus

Given the investment horizon of 90 days Meta Platforms is expected to generate 0.82 times more return on investment than Prosus. However, Meta Platforms is 1.23 times less risky than Prosus. It trades about 0.18 of its potential returns per unit of risk. Prosus is currently generating about 0.09 per unit of risk. If you would invest  51,637  in Meta Platforms on September 5, 2024 and sell it today you would earn a total of  9,728  from holding Meta Platforms or generate 18.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Meta Platforms  vs.  Prosus

Meta Platforms

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Prosus

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Prosus may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Meta Platforms and Prosus

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

The idea behind Meta Platforms and Prosus 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.