Correlation Between Prosus and YY

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

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

Diversification Opportunities for Prosus and YY

-0.22

Correlation Coefficient

Prosus  YY

Very good diversification

The 3 months correlation between Prosus and YY is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Prosus and YY Inc Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on YY Inc Class and Prosus 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 Prosus are associated (or correlated) with YY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of YY Inc Class has no effect on the direction of Prosus i.e., Prosus and YY go up and down completely randomly.

Pair Corralation between Prosus and YY

Assuming the 90 days horizon Prosus is expected to generate 1.21 times less return on investment than YY. But when comparing it to its historical volatility, Prosus is 1.44 times less risky than YY. It trades about 0.09 of its potential returns per unit of risk. YY Inc Class is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,606  in YY Inc Class on September 12, 2024 and sell it today you would earn a total of  440.00  from holding YY Inc Class or generate 12.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Prosus  vs.  YY Inc Class

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 fragile basic indicators, Prosus may actually be approaching a critical reversion point that can send shares even higher in January 2025.

YY Inc Class

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in YY Inc Class are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, YY showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prosus and YY

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

The idea behind Prosus and YY Inc Class 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.