Correlation Between Prada Spa and Burberry Group

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

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

Diversification Opportunities for Prada Spa and Burberry Group

0.66

Correlation Coefficient

Prada Spa  Burberry Group

Poor diversification

The 3 months correlation between Prada and Burberry is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Prada Spa PK and Burberry Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burberry Group plc 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 PK are associated (or correlated) with Burberry Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burberry Group plc has no effect on the direction of Prada Spa i.e., Prada Spa and Burberry Group go up and down completely randomly.

Pair Corralation between Prada Spa and Burberry Group

Assuming the 90 days horizon Prada Spa is expected to generate 1.81 times less return on investment than Burberry Group. But when comparing it to its historical volatility, Prada Spa PK is 1.73 times less risky than Burberry Group. It trades about 0.17 of its potential returns per unit of risk. Burberry Group plc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  824.00  in Burberry Group plc on September 13, 2024 and sell it today you would earn a total of  424.00  from holding Burberry Group plc or generate 51.46% return on investment over 90 days.

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

Prada Spa PK  vs.  Burberry Group plc

Prada Spa PK

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prada Spa PK are ranked lower than 13 (%) 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.

Burberry Group plc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Burberry Group plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Burberry Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prada Spa and Burberry Group

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

The idea behind Prada Spa PK and Burberry Group plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.