Correlation Between Pearson Plc and Schibsted ASA

Can any of the company-specific risk be diversified away by investing in both Pearson Plc and Schibsted ASA 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 Schibsted ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pearson plc and Schibsted ASA A, you can compare the effects of market volatilities on Pearson Plc and Schibsted ASA 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 Schibsted ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pearson Plc and Schibsted ASA.

Diversification Opportunities for Pearson Plc and Schibsted ASA

0.86

Correlation Coefficient

Pearson Plc  Schibsted ASA

Very poor diversification

The 3 months correlation between Pearson and Schibsted is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pearson plc and Schibsted ASA A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schibsted ASA A 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 are associated (or correlated) with Schibsted ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schibsted ASA A has no effect on the direction of Pearson Plc i.e., Pearson Plc and Schibsted ASA go up and down completely randomly.

Pair Corralation between Pearson Plc and Schibsted ASA

Assuming the 90 days trading horizon Pearson plc is expected to generate 0.54 times more return on investment than Schibsted ASA. However, Pearson plc is 1.83 times less risky than Schibsted ASA. It trades about 0.42 of its potential returns per unit of risk. Schibsted ASA A is currently generating about 0.06 per unit of risk. If you would invest  1,210  in Pearson plc on September 23, 2024 and sell it today you would earn a total of  300.00  from holding Pearson plc or generate 24.79% return on investment over 90 days.

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

Pearson plc  vs.  Schibsted ASA A

Pearson plc

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson plc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Pearson Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Schibsted ASA A

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schibsted ASA A are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Schibsted ASA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Pearson Plc and Schibsted ASA

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

The idea behind Pearson plc and Schibsted ASA A 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.