Correlation Between Prada Spa and Capri Holdings

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

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

Diversification Opportunities for Prada Spa and Capri Holdings

0.25

Correlation Coefficient

Prada Spa  Capri Holdings

Modest diversification

The 3 months correlation between Prada and Capri is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Prada Spa PK and Capri Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capri Holdings and Prada Spa 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 Prada Spa PK are associated (or correlated) with Capri Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capri Holdings has no effect on the direction of Prada Spa i.e., Prada Spa and Capri Holdings go up and down completely randomly.

Pair Corralation between Prada Spa and Capri Holdings

Assuming the 90 days horizon Prada Spa PK is expected to under-perform the Capri Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, Prada Spa PK is 1.04 times less risky than Capri Holdings. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Capri Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,052  in Capri Holdings on December 28, 2024 and sell it today you would lose (22.00) from holding Capri Holdings or give up 1.07% of portfolio value over 90 days.

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

Prada Spa PK  vs.  Capri Holdings

Prada Spa PK

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prada Spa PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Capri Holdings

Risk-Adjusted Performance

Weak

Over the last 90 days Capri Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Capri Holdings is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Prada Spa and Capri Holdings

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

The idea behind Prada Spa PK and Capri 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .