Correlation Between Swatch Group and Prada Spa

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

By analyzing existing cross correlation between Swatch Group AG and Prada Spa PK, you can compare the effects of market volatilities on Swatch Group and Prada Spa 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 Swatch Group with a short position of Prada Spa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swatch Group and Prada Spa.

Diversification Opportunities for Swatch Group and Prada Spa

-0.27

Correlation Coefficient

Swatch Group  Prada Spa

Very good diversification

The 3 months correlation between Swatch and Prada is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Swatch Group AG and Prada Spa PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prada Spa PK and Swatch Group 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 Swatch Group AG are associated (or correlated) with Prada Spa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prada Spa PK has no effect on the direction of Swatch Group i.e., Swatch Group and Prada Spa go up and down completely randomly.

Pair Corralation between Swatch Group and Prada Spa

Assuming the 90 days horizon Swatch Group AG is expected to under-perform the Prada Spa. But the pink sheet apears to be less risky and, when comparing its historical volatility, Swatch Group AG is 1.47 times less risky than Prada Spa. The pink sheet trades about -0.3 of its potential returns per unit of risk. The Prada Spa PK is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,585  in Prada Spa PK on January 29, 2024 and sell it today you would earn a total of  0.00  from holding Prada Spa PK or generate 0.0% return on investment over 90 days.

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

Swatch Group AG  vs.  Prada Spa PK

Swatch Group AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swatch Group AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Prada Spa PK

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prada Spa PK are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Prada Spa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swatch Group and Prada Spa

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

The idea behind Swatch Group AG and Prada Spa 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.