Correlation Between Pearson PLC and Stereo Vision

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

Diversification Opportunities for Pearson PLC and Stereo Vision

-0.09

Correlation Coefficient

Pearson PLC  Stereo Vision

Good diversification

The 3 months correlation between Pearson and Stereo is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Stereo Vision Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stereo Vision Entert 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 Stereo Vision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stereo Vision Entert has no effect on the direction of Pearson PLC i.e., Pearson PLC and Stereo Vision go up and down completely randomly.

Pair Corralation between Pearson PLC and Stereo Vision

Considering the 90-day investment horizon Pearson PLC ADR is expected to generate 0.05 times more return on investment than Stereo Vision. However, Pearson PLC ADR is 19.09 times less risky than Stereo Vision. It trades about 0.02 of its potential returns per unit of risk. Stereo Vision Entertainment is currently generating about -0.22 per unit of risk. If you would invest  1,591  in Pearson PLC ADR on October 6, 2024 and sell it today you would earn a total of  6.00  from holding Pearson PLC ADR or generate 0.38% 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.  Stereo Vision Entertainment

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.

Stereo Vision Entert

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stereo Vision Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Pearson PLC and Stereo Vision

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

The idea behind Pearson PLC ADR and Stereo Vision Entertainment 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.