Correlation Between Prada Spa and Moncler SpA

Can any of the company-specific risk be diversified away by investing in both Prada Spa and Moncler SpA 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 Moncler SpA 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 Moncler SpA, you can compare the effects of market volatilities on Prada Spa and Moncler SpA 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 Moncler SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prada Spa and Moncler SpA.

Diversification Opportunities for Prada Spa and Moncler SpA

-0.13

Correlation Coefficient

Prada Spa  Moncler SpA

Good diversification

The 3 months correlation between Prada and Moncler is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Prada Spa PK and Moncler SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moncler SpA 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 Moncler SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moncler SpA has no effect on the direction of Prada Spa i.e., Prada Spa and Moncler SpA go up and down completely randomly.

Pair Corralation between Prada Spa and Moncler SpA

Assuming the 90 days horizon Prada Spa PK is expected to generate 1.12 times more return on investment than Moncler SpA. However, Prada Spa is 1.12 times more volatile than Moncler SpA. It trades about 0.04 of its potential returns per unit of risk. Moncler SpA is currently generating about 0.02 per unit of risk. If you would invest  1,161  in Prada Spa PK on October 11, 2024 and sell it today you would earn a total of  451.00  from holding Prada Spa PK or generate 38.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.99%
Values	Daily Returns

Prada Spa PK  vs.  Moncler SpA

Prada Spa PK

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prada Spa PK are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prada Spa showed solid returns over the last few months and may actually be approaching a breakup point.

Moncler SpA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Moncler SpA 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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Prada Spa and Moncler SpA

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

The idea behind Prada Spa PK and Moncler SpA 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.