Correlation Between Prosus NV and Naspers

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

Diversification Opportunities for Prosus NV and Naspers

0.92

Correlation Coefficient

Prosus NV  Naspers

Almost no diversification

The 3 months correlation between Prosus and Naspers is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Prosus NV ADR and Naspers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naspers Limited 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 Naspers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naspers Limited has no effect on the direction of Prosus NV i.e., Prosus NV and Naspers go up and down completely randomly.

Pair Corralation between Prosus NV and Naspers

Assuming the 90 days horizon Prosus NV is expected to generate 1.3 times less return on investment than Naspers. But when comparing it to its historical volatility, Prosus NV ADR is 1.69 times less risky than Naspers. It trades about 0.13 of its potential returns per unit of risk. Naspers Limited is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  20,860  in Naspers Limited on December 29, 2024 and sell it today you would earn a total of  4,515  from holding Naspers Limited or generate 21.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	93.44%
Values	Daily Returns

Prosus NV ADR  vs.  Naspers Limited

Prosus NV ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV ADR are ranked lower than 10 (%) 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.

Naspers Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naspers Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Naspers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prosus NV and Naspers

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

The idea behind Prosus NV ADR and Naspers Limited 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.