Correlation Between Meta Platforms and Prosus NV

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

Diversification Opportunities for Meta Platforms and Prosus NV

0.23

Correlation Coefficient

Meta Platforms  Prosus NV

Modest diversification

The 3 months correlation between Meta and Prosus is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Meta Platforms and Prosus NV ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus NV ADR 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 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 ADR has no effect on the direction of Meta Platforms i.e., Meta Platforms and Prosus NV go up and down completely randomly.

Pair Corralation between Meta Platforms and Prosus NV

Given the investment horizon of 90 days Meta Platforms is expected to under-perform the Prosus NV. But the stock apears to be less risky and, when comparing its historical volatility, Meta Platforms is 2.0 times less risky than Prosus NV. The stock trades about -0.08 of its potential returns per unit of risk. The Prosus NV ADR is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  768.00  in Prosus NV ADR on December 1, 2024 and sell it today you would earn a total of  120.00  from holding Prosus NV ADR or generate 15.63% return on investment over 90 days.

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

Meta Platforms  vs.  Prosus NV ADR

Meta Platforms

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Prosus NV ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prosus NV may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Meta Platforms and Prosus NV

The main advantage of trading using opposite Meta Platforms and Prosus NV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meta Platforms 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 Meta Platforms and Prosus NV 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.