Correlation Between Prosus NV and Relx PLC

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

By analyzing existing cross correlation between Prosus NV and Relx PLC, you can compare the effects of market volatilities on Prosus NV and Relx PLC 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 Relx PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prosus NV and Relx PLC.

Diversification Opportunities for Prosus NV and Relx PLC

0.15

Correlation Coefficient

Prosus NV  Relx PLC

Average diversification

The 3 months correlation between Prosus and Relx is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Prosus NV and Relx PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC 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 are associated (or correlated) with Relx PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relx PLC has no effect on the direction of Prosus NV i.e., Prosus NV and Relx PLC go up and down completely randomly.

Pair Corralation between Prosus NV and Relx PLC

Assuming the 90 days trading horizon Prosus NV is expected to generate 1.52 times more return on investment than Relx PLC. However, Prosus NV is 1.52 times more volatile than Relx PLC. It trades about 0.19 of its potential returns per unit of risk. Relx PLC is currently generating about 0.07 per unit of risk. If you would invest  3,244  in Prosus NV on September 18, 2024 and sell it today you would earn a total of  778.00  from holding Prosus NV or generate 23.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

Prosus NV  vs.  Relx PLC

Prosus NV

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Prosus NV unveiled solid returns over the last few months and may actually be approaching a breakup point.

Relx PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Relx PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Relx PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Prosus NV and Relx PLC

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

The idea behind Prosus NV and Relx PLC 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.