Correlation Between Pearson PLC and Shoe Carnival

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

Diversification Opportunities for Pearson PLC and Shoe Carnival

-0.65

Correlation Coefficient

Pearson PLC  Shoe Carnival

Excellent diversification

The 3 months correlation between Pearson and Shoe is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Shoe Carnival in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoe Carnival 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 Shoe Carnival. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoe Carnival has no effect on the direction of Pearson PLC i.e., Pearson PLC and Shoe Carnival go up and down completely randomly.

Pair Corralation between Pearson PLC and Shoe Carnival

Considering the 90-day investment horizon Pearson PLC ADR is expected to generate 0.41 times more return on investment than Shoe Carnival. However, Pearson PLC ADR is 2.45 times less risky than Shoe Carnival. It trades about 0.18 of its potential returns per unit of risk. Shoe Carnival is currently generating about -0.07 per unit of risk. If you would invest  1,390  in Pearson PLC ADR on September 13, 2024 and sell it today you would earn a total of  182.00  from holding Pearson PLC ADR or generate 13.09% return on investment over 90 days.

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

Pearson PLC ADR  vs.  Shoe Carnival

Pearson PLC ADR

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pearson PLC ADR are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Pearson PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Shoe Carnival

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shoe Carnival has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Pearson PLC and Shoe Carnival

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

The idea behind Pearson PLC ADR and Shoe Carnival 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.