Correlation Between Relx PLC and Afya
Can any of the company-specific risk be diversified away by investing in both Relx PLC and Afya 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 Relx PLC and Afya into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Relx PLC ADR and Afya, you can compare the effects of market volatilities on Relx PLC and Afya 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 Relx PLC with a short position of Afya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Relx PLC and Afya.
Diversification Opportunities for Relx PLC and Afya
Significant diversification
The 3 months correlation between Relx and Afya is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC ADR and Afya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Afya and Relx 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 Relx PLC ADR are associated (or correlated) with Afya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Afya has no effect on the direction of Relx PLC i.e., Relx PLC and Afya go up and down completely randomly.
Pair Corralation between Relx PLC and Afya
Given the investment horizon of 90 days Relx PLC ADR is expected to under-perform the Afya. But the stock apears to be less risky and, when comparing its historical volatility, Relx PLC ADR is 1.5 times less risky than Afya. The stock trades about -0.1 of its potential returns per unit of risk. The Afya is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,673 in Afya on August 28, 2024 and sell it today you would earn a total of 13.00 from holding Afya or generate 0.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Relx PLC ADR vs. Afya
Performance |
| Timeline |
| Relx PLC ADR |
| Afya |
Relx PLC and Afya Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Relx PLC and Afya
The main advantage of trading using opposite Relx PLC and Afya positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Relx PLC position performs unexpectedly, Afya 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 Afya will offset losses from the drop in Afya's long position.| Relx PLC vs. Maximus | Relx PLC vs. CBIZ Inc | Relx PLC vs. First Advantage Corp | Relx PLC vs. Network 1 Technologies |
| Afya vs. American Public Education | Afya vs. Lincoln Educational Services | Afya vs. Adtalem Global Education |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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