Correlation Between Potash America and Experian Plc

Can any of the company-specific risk be diversified away by investing in both Potash America and Experian Plc 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 Potash America and Experian Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Potash America and Experian plc PK, you can compare the effects of market volatilities on Potash America and Experian Plc 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 Potash America with a short position of Experian Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potash America and Experian Plc.

Diversification Opportunities for Potash America and Experian Plc

0.41

Correlation Coefficient

Potash America  Experian Plc

Very weak diversification

The 3 months correlation between Potash and Experian is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Potash America and Experian plc PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Experian plc PK and Potash America 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 Potash America are associated (or correlated) with Experian Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Experian plc PK has no effect on the direction of Potash America i.e., Potash America and Experian Plc go up and down completely randomly.

Pair Corralation between Potash America and Experian Plc

Given the investment horizon of 90 days Potash America is expected to generate 15.83 times more return on investment than Experian Plc. However, Potash America is 15.83 times more volatile than Experian plc PK. It trades about 0.2 of its potential returns per unit of risk. Experian plc PK is currently generating about 0.11 per unit of risk. If you would invest  0.05  in Potash America on December 29, 2024 and sell it today you would earn a total of  0.16  from holding Potash America or generate 320.0% return on investment over 90 days.

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

Potash America  vs.  Experian plc PK

Potash America

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Potash America are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Potash America displayed solid returns over the last few months and may actually be approaching a breakup point.

Experian plc PK

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Experian plc PK are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Experian Plc may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Potash America and Experian Plc

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

The idea behind Potash America and Experian plc PK 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.