Correlation Between Prosus NV and Cheetah Mobile

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

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

Diversification Opportunities for Prosus NV and Cheetah Mobile

0.6

Correlation Coefficient

Prosus NV  Cheetah Mobile

Poor diversification

The 3 months correlation between Prosus and Cheetah is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Prosus NV ADR and Cheetah Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheetah Mobile and Prosus NV 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 NV ADR are associated (or correlated) with Cheetah Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheetah Mobile has no effect on the direction of Prosus NV i.e., Prosus NV and Cheetah Mobile go up and down completely randomly.

Pair Corralation between Prosus NV and Cheetah Mobile

Assuming the 90 days horizon Prosus NV is expected to generate 4.67 times less return on investment than Cheetah Mobile. But when comparing it to its historical volatility, Prosus NV ADR is 2.57 times less risky than Cheetah Mobile. It trades about 0.09 of its potential returns per unit of risk. Cheetah Mobile is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  360.00  in Cheetah Mobile on September 4, 2024 and sell it today you would earn a total of  237.00  from holding Cheetah Mobile or generate 65.83% return on investment over 90 days.

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

Prosus NV ADR  vs.  Cheetah Mobile

Prosus NV ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prosus NV showed solid returns over the last few months and may actually be approaching a breakup point.

Cheetah Mobile

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cheetah Mobile are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Cheetah Mobile displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prosus NV and Cheetah Mobile

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

The idea behind Prosus NV ADR and Cheetah Mobile 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.