Correlation Between Pearson PLC and Lotus Technology
Can any of the company-specific risk be diversified away by investing in both Pearson PLC and Lotus Technology 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 Pearson PLC and Lotus Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pearson PLC ADR and Lotus Technology American, you can compare the effects of market volatilities on Pearson PLC and Lotus Technology 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 Pearson PLC with a short position of Lotus Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pearson PLC and Lotus Technology.
Diversification Opportunities for Pearson PLC and Lotus Technology
-0.57 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Pearson and Lotus is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Lotus Technology American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lotus Technology American and Pearson 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 Pearson PLC ADR are associated (or correlated) with Lotus Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lotus Technology American has no effect on the direction of Pearson PLC i.e., Pearson PLC and Lotus Technology go up and down completely randomly.
Pair Corralation between Pearson PLC and Lotus Technology
Considering the 90-day investment horizon Pearson PLC ADR is expected to generate 0.48 times more return on investment than Lotus Technology. However, Pearson PLC ADR is 2.08 times less risky than Lotus Technology. It trades about 0.28 of its potential returns per unit of risk. Lotus Technology American is currently generating about -0.16 per unit of risk. If you would invest 1,460 in Pearson PLC ADR on September 1, 2024 and sell it today you would earn a total of 103.00 from holding Pearson PLC ADR or generate 7.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pearson PLC ADR vs. Lotus Technology American
Performance |
| Timeline |
| Pearson PLC ADR |
| Lotus Technology American |
Pearson PLC and Lotus Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pearson PLC and Lotus Technology
The main advantage of trading using opposite Pearson PLC and Lotus Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pearson PLC position performs unexpectedly, Lotus Technology 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 Lotus Technology will offset losses from the drop in Lotus Technology's long position.| Pearson PLC vs. John Wiley Sons | Pearson PLC vs. New York Times | Pearson PLC vs. Lee Enterprises Incorporated | Pearson PLC vs. Gannett Co |
| Lotus Technology vs. Pearson PLC ADR | Lotus Technology vs. Coursera | Lotus Technology vs. AMREP | Lotus Technology vs. Ihuman Inc |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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