Correlation Between Pearson Plc and Relx PLC

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

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

Diversification Opportunities for Pearson Plc and Relx PLC

-0.24

Correlation Coefficient

Pearson Plc  Relx PLC

Very good diversification

The 3 months correlation between Pearson and Relx is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Pearson Plc and Relx PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC 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 Relx PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relx PLC has no effect on the direction of Pearson Plc i.e., Pearson Plc and Relx PLC go up and down completely randomly.

Pair Corralation between Pearson Plc and Relx PLC

If you would invest  4,780  in Relx PLC on September 13, 2024 and sell it today you would lose (60.00) from holding Relx PLC or give up 1.26% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Pearson Plc  vs.  Relx PLC

Pearson Plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Relx PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Relx PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Relx PLC 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 Relx PLC

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

The idea behind Pearson Plc and Relx 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.