Correlation Between Scholastic and Pearson PLC

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

By analyzing existing cross correlation between Scholastic and Pearson PLC ADR, you can compare the effects of market volatilities on Scholastic and Pearson 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 Scholastic with a short position of Pearson PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scholastic and Pearson PLC.

Diversification Opportunities for Scholastic and Pearson PLC

0.26

Correlation Coefficient

Scholastic  Pearson PLC

Modest diversification

The 3 months correlation between Scholastic and Pearson is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Scholastic and Pearson PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pearson PLC ADR and Scholastic 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 Scholastic are associated (or correlated) with Pearson PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pearson PLC ADR has no effect on the direction of Scholastic i.e., Scholastic and Pearson PLC go up and down completely randomly.

Pair Corralation between Scholastic and Pearson PLC

Given the investment horizon of 90 days Scholastic is expected to under-perform the Pearson PLC. In addition to that, Scholastic is 2.26 times more volatile than Pearson PLC ADR. It trades about -0.03 of its total potential returns per unit of risk. Pearson PLC ADR is currently generating about 0.02 per unit of volatility. If you would invest  1,585  in Pearson PLC ADR on December 30, 2024 and sell it today you would earn a total of  12.00  from holding Pearson PLC ADR or generate 0.76% return on investment over 90 days.

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

Scholastic  vs.  Pearson PLC ADR

Scholastic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Scholastic has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pearson PLC ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 1 (%) 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.

Pair Trading with Scholastic and Pearson PLC

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

The idea behind Scholastic and Pearson PLC ADR 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.