Correlation Between Pearson PLC and Global Net

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

By analyzing existing cross correlation between Pearson PLC ADR and Global Net Lease, you can compare the effects of market volatilities on Pearson PLC and Global Net 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 Pearson PLC with a short position of Global Net. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pearson PLC and Global Net.

Diversification Opportunities for Pearson PLC and Global Net

-0.26

Correlation Coefficient

Pearson PLC  Global Net

Very good diversification

The 3 months correlation between Pearson and Global is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Global Net Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Net Lease and Pearson PLC 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 Pearson PLC ADR are associated (or correlated) with Global Net. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Net Lease has no effect on the direction of Pearson PLC i.e., Pearson PLC and Global Net go up and down completely randomly.

Pair Corralation between Pearson PLC and Global Net

Considering the 90-day investment horizon Pearson PLC ADR is expected to generate 0.62 times more return on investment than Global Net. However, Pearson PLC ADR is 1.62 times less risky than Global Net. It trades about 0.1 of its potential returns per unit of risk. Global Net Lease is currently generating about 0.0 per unit of risk. If you would invest  1,572  in Pearson PLC ADR on October 11, 2024 and sell it today you would earn a total of  38.00  from holding Pearson PLC ADR or generate 2.42% return on investment over 90 days.

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

Pearson PLC ADR  vs.  Global Net Lease

Pearson PLC ADR

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pearson PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Global Net Lease

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pearson PLC and Global Net

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

The idea behind Pearson PLC ADR and Global Net Lease 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.