Correlation Between Pearson Plc and RCI Hospitality

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

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

Diversification Opportunities for Pearson Plc and RCI Hospitality

0.93

Correlation Coefficient

Pearson Plc  RCI Hospitality

Almost no diversification

The 3 months correlation between Pearson and RCI is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Pearson plc and RCI Hospitality Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCI Hospitality Holdings and Pearson Plc 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 Pearson plc are associated (or correlated) with RCI Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCI Hospitality Holdings has no effect on the direction of Pearson Plc i.e., Pearson Plc and RCI Hospitality go up and down completely randomly.

Pair Corralation between Pearson Plc and RCI Hospitality

Assuming the 90 days trading horizon Pearson Plc is expected to generate 1.19 times less return on investment than RCI Hospitality. But when comparing it to its historical volatility, Pearson plc is 2.6 times less risky than RCI Hospitality. It trades about 0.31 of its potential returns per unit of risk. RCI Hospitality Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,989  in RCI Hospitality Holdings on October 23, 2024 and sell it today you would earn a total of  1,071  from holding RCI Hospitality Holdings or generate 26.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

Pearson plc  vs.  RCI Hospitality Holdings

Pearson plc

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson plc are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Pearson Plc reported solid returns over the last few months and may actually be approaching a breakup point.

RCI Hospitality Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, RCI Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pearson Plc and RCI Hospitality

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

The idea behind Pearson plc and RCI Hospitality Holdings 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.