Correlation Between Shell PLC and Prosus NV

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

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

Diversification Opportunities for Shell PLC and Prosus NV

0.06

Correlation Coefficient

Shell PLC  Prosus NV

Significant diversification

The 3 months correlation between Shell and Prosus is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and Prosus NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus NV and Shell 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 Shell PLC are associated (or correlated) with Prosus NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosus NV has no effect on the direction of Shell PLC i.e., Shell PLC and Prosus NV go up and down completely randomly.

Pair Corralation between Shell PLC and Prosus NV

Assuming the 90 days trading horizon Shell PLC is expected to generate 37.83 times less return on investment than Prosus NV. But when comparing it to its historical volatility, Shell PLC is 1.49 times less risky than Prosus NV. It trades about 0.01 of its potential returns per unit of risk. Prosus NV is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,263  in Prosus NV on September 17, 2024 and sell it today you would earn a total of  804.00  from holding Prosus NV or generate 24.64% return on investment over 90 days.

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

Shell PLC  vs.  Prosus NV

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shell PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Prosus NV

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Shell PLC and Prosus NV

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

The idea behind Shell PLC and Prosus NV 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.