Correlation Between Woolworths Holdings and Prosus NV

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

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

Diversification Opportunities for Woolworths Holdings and Prosus NV

-0.04

Correlation Coefficient

Woolworths Holdings  Prosus NV

Good diversification

The 3 months correlation between Woolworths and Prosus is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths Holdings and Prosus NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosus NV and Woolworths Holdings 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 Woolworths Holdings 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 Woolworths Holdings i.e., Woolworths Holdings and Prosus NV go up and down completely randomly.

Pair Corralation between Woolworths Holdings and Prosus NV

Assuming the 90 days trading horizon Woolworths Holdings is expected to generate 4.98 times less return on investment than Prosus NV. But when comparing it to its historical volatility, Woolworths Holdings is 1.2 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 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,678,292  in Prosus NV on September 23, 2024 and sell it today you would earn a total of  1,810,708  from holding Prosus NV or generate 31.89% return on investment over 90 days.

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

Woolworths Holdings  vs.  Prosus NV

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Woolworths Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Prosus NV

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosus NV are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Prosus NV exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Woolworths Holdings and Prosus NV

The main advantage of trading using opposite Woolworths Holdings and Prosus NV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woolworths Holdings 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 Woolworths Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.