Correlation Between Chow Tai and Prada SpA

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

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

Diversification Opportunities for Chow Tai and Prada SpA

-0.39

Correlation Coefficient

Chow Tai  Prada SpA

Very good diversification

The 3 months correlation between Chow and Prada is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Chow Tai Fook and Prada SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prada SpA and Chow Tai 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 Chow Tai Fook are associated (or correlated) with Prada SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prada SpA has no effect on the direction of Chow Tai i.e., Chow Tai and Prada SpA go up and down completely randomly.

Pair Corralation between Chow Tai and Prada SpA

Assuming the 90 days horizon Chow Tai Fook is expected to under-perform the Prada SpA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Chow Tai Fook is 1.13 times less risky than Prada SpA. The pink sheet trades about -0.08 of its potential returns per unit of risk. The Prada SpA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  709.00  in Prada SpA on March 3, 2024 and sell it today you would earn a total of  131.00  from holding Prada SpA or generate 18.48% return on investment over 90 days.

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

Chow Tai Fook  vs.  Prada SpA

Chow Tai Fook

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chow Tai Fook has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Prada SpA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prada SpA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Prada SpA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Chow Tai and Prada SpA

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

The idea behind Chow Tai Fook and Prada SpA 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.

Check out your portfolio center.

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.