Correlation Between Prosus and Farmhouse

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

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

Diversification Opportunities for Prosus and Farmhouse

-0.05

Correlation Coefficient

Prosus  Farmhouse

Good diversification

The 3 months correlation between Prosus and Farmhouse is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Prosus and Farmhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmhouse and Prosus 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 Prosus are associated (or correlated) with Farmhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmhouse has no effect on the direction of Prosus i.e., Prosus and Farmhouse go up and down completely randomly.

Pair Corralation between Prosus and Farmhouse

Assuming the 90 days horizon Prosus is expected to under-perform the Farmhouse. But the pink sheet apears to be less risky and, when comparing its historical volatility, Prosus is 11.32 times less risky than Farmhouse. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Farmhouse is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Farmhouse on October 1, 2024 and sell it today you would lose (9.03) from holding Farmhouse or give up 56.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Prosus  vs.  Farmhouse

Prosus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prosus has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Prosus is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Farmhouse

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmhouse has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Farmhouse is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Prosus and Farmhouse

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

The idea behind Prosus and Farmhouse 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.