Correlation Between Pearson PLC and Strategic Education

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

Diversification Opportunities for Pearson PLC and Strategic Education

-0.16

Correlation Coefficient

Pearson PLC  Strategic Education

Good diversification

The 3 months correlation between Pearson and Strategic is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Strategic Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Education 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 Strategic Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Education has no effect on the direction of Pearson PLC i.e., Pearson PLC and Strategic Education go up and down completely randomly.

Pair Corralation between Pearson PLC and Strategic Education

Considering the 90-day investment horizon Pearson PLC ADR is expected to generate 0.57 times more return on investment than Strategic Education. However, Pearson PLC ADR is 1.75 times less risky than Strategic Education. It trades about 0.01 of its potential returns per unit of risk. Strategic Education is currently generating about -0.06 per unit of risk. If you would invest  1,594  in Pearson PLC ADR on December 21, 2024 and sell it today you would lose (3.00) from holding Pearson PLC ADR or give up 0.19% of portfolio value over 90 days.

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

Pearson PLC ADR  vs.  Strategic Education

Pearson PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pearson PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Pearson PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Strategic Education

Risk-Adjusted Performance

Very Weak

Over the last 90 days Strategic Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Pearson PLC and Strategic Education

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

The idea behind Pearson PLC ADR and Strategic Education 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.