Correlation Between Pearson PLC and Village Super

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

Diversification Opportunities for Pearson PLC and Village Super

0.23

Correlation Coefficient

Pearson PLC  Village Super

Modest diversification

The 3 months correlation between Pearson and Village is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Village Super Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Village Super Market 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 Village Super. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Village Super Market has no effect on the direction of Pearson PLC i.e., Pearson PLC and Village Super go up and down completely randomly.

Pair Corralation between Pearson PLC and Village Super

Considering the 90-day investment horizon Pearson PLC is expected to generate 1.03 times less return on investment than Village Super. But when comparing it to its historical volatility, Pearson PLC ADR is 1.29 times less risky than Village Super. It trades about 0.05 of its potential returns per unit of risk. Village Super Market is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,202  in Village Super Market on December 19, 2024 and sell it today you would earn a total of  113.00  from holding Village Super Market or generate 3.53% return on investment over 90 days.

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

Pearson PLC ADR  vs.  Village Super Market

Pearson PLC ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Village Super Market

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Village Super Market are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Village Super is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pearson PLC and Village Super

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

The idea behind Pearson PLC ADR and Village Super Market 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..