Correlation Between Prosus NV and Compagnie Financire

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

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

Diversification Opportunities for Prosus NV and Compagnie Financire

0.8

Correlation Coefficient

Prosus NV  Compagnie Financire

Very poor diversification

The 3 months correlation between Prosus and Compagnie is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Prosus NV and Compagnie Financire Richemont in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compagnie Financire 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 Compagnie Financire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compagnie Financire has no effect on the direction of Prosus NV i.e., Prosus NV and Compagnie Financire go up and down completely randomly.

Pair Corralation between Prosus NV and Compagnie Financire

Assuming the 90 days trading horizon Prosus NV is expected to generate 1.09 times more return on investment than Compagnie Financire. However, Prosus NV is 1.09 times more volatile than Compagnie Financire Richemont. It trades about 0.04 of its potential returns per unit of risk. Compagnie Financire Richemont is currently generating about 0.03 per unit of risk. If you would invest  5,678,292  in Prosus NV on September 24, 2024 and sell it today you would earn a total of  1,810,708  from holding Prosus NV or generate 31.89% return on investment over 90 days.

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

Prosus NV  vs.  Compagnie Financire Richemont

Prosus NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Prosus NV may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Compagnie Financire

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie Financire Richemont are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Compagnie Financire may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prosus NV and Compagnie Financire

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

The idea behind Prosus NV and Compagnie Financire Richemont 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.