Correlation Between Prosus NV and Netcare

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

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

Diversification Opportunities for Prosus NV and Netcare

0.56

Correlation Coefficient

Prosus NV  Netcare

Very weak diversification

The 3 months correlation between Prosus and Netcare is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Prosus NV and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare 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 Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of Prosus NV i.e., Prosus NV and Netcare go up and down completely randomly.

Pair Corralation between Prosus NV and Netcare

Assuming the 90 days trading horizon Prosus NV is expected to generate 1.19 times more return on investment than Netcare. However, Prosus NV is 1.19 times more volatile than Netcare. It trades about 0.17 of its potential returns per unit of risk. Netcare is currently generating about -0.06 per unit of risk. If you would invest  7,210,000  in Prosus NV on September 24, 2024 and sell it today you would earn a total of  279,000  from holding Prosus NV or generate 3.87% return on investment over 90 days.

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

Prosus NV  vs.  Netcare

Prosus NV

Risk-Adjusted Performance

6 of 100

OK

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.

Netcare

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Netcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Netcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Prosus NV and Netcare

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

The idea behind Prosus NV and Netcare 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.