Correlation Between Pearson PLC and VS Media

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

Diversification Opportunities for Pearson PLC and VS Media

-0.01

Correlation Coefficient

Pearson PLC  VS Media

Good diversification

The 3 months correlation between Pearson and VSME is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and VS Media Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VS Media Holdings 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 VS Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VS Media Holdings has no effect on the direction of Pearson PLC i.e., Pearson PLC and VS Media go up and down completely randomly.

Pair Corralation between Pearson PLC and VS Media

Considering the 90-day investment horizon Pearson PLC is expected to generate 1.65 times less return on investment than VS Media. But when comparing it to its historical volatility, Pearson PLC ADR is 15.89 times less risky than VS Media. It trades about 0.22 of its potential returns per unit of risk. VS Media Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  226.00  in VS Media Holdings on September 3, 2024 and sell it today you would lose (107.00) from holding VS Media Holdings or give up 47.35% 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.  VS Media Holdings

Pearson PLC ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pearson PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

VS Media Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VS Media Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, VS Media exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pearson PLC and VS Media

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

The idea behind Pearson PLC ADR and VS Media Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.