Correlation Between Pearson PLC and Griffon

Can any of the company-specific risk be diversified away by investing in both Pearson PLC and Griffon 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 Griffon 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 Griffon, you can compare the effects of market volatilities on Pearson PLC and Griffon 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 Griffon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pearson PLC and Griffon.

Diversification Opportunities for Pearson PLC and Griffon

0.61

Correlation Coefficient

Pearson PLC  Griffon

Poor diversification

The 3 months correlation between Pearson and Griffon is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Griffon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Griffon 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 Griffon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Griffon has no effect on the direction of Pearson PLC i.e., Pearson PLC and Griffon go up and down completely randomly.

Pair Corralation between Pearson PLC and Griffon

Considering the 90-day investment horizon Pearson PLC is expected to generate 5.57 times less return on investment than Griffon. But when comparing it to its historical volatility, Pearson PLC ADR is 3.95 times less risky than Griffon. It trades about 0.21 of its potential returns per unit of risk. Griffon is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  6,339  in Griffon on September 5, 2024 and sell it today you would earn a total of  1,943  from holding Griffon or generate 30.65% return on investment over 90 days.

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

Pearson PLC ADR  vs.  Griffon

Pearson PLC ADR

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pearson PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Griffon

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Griffon are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Griffon reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pearson PLC and Griffon

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

The idea behind Pearson PLC ADR and Griffon 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.