Correlation Between Prada SpA and Compagnie Financiere

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

By analyzing existing cross correlation between Prada SpA and Compagnie Financiere Richemont, you can compare the effects of market volatilities on Prada SpA and Compagnie Financiere 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 Prada SpA with a short position of Compagnie Financiere. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prada SpA and Compagnie Financiere.

Diversification Opportunities for Prada SpA and Compagnie Financiere

0.27

Correlation Coefficient

Prada SpA  Compagnie Financiere

Modest diversification

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

Pair Corralation between Prada SpA and Compagnie Financiere

Assuming the 90 days horizon Prada SpA is expected to generate 2.2 times more return on investment than Compagnie Financiere. However, Prada SpA is 2.2 times more volatile than Compagnie Financiere Richemont. It trades about 0.09 of its potential returns per unit of risk. Compagnie Financiere Richemont is currently generating about -0.02 per unit of risk. If you would invest  636.00  in Prada SpA on September 30, 2024 and sell it today you would earn a total of  127.00  from holding Prada SpA or generate 19.97% return on investment over 90 days.

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

Prada SpA  vs.  Compagnie Financiere Richemont

Prada SpA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prada SpA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Prada SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Compagnie Financiere

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compagnie Financiere Richemont has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Compagnie Financiere is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prada SpA and Compagnie Financiere

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

The idea behind Prada SpA and Compagnie Financiere Richemont 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.