Correlation Between AECI and MTN
Can any of the company-specific risk be diversified away by investing in both AECI and MTN 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 AECI and MTN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AECI and MTN Group, you can compare the effects of market volatilities on AECI and MTN 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 AECI with a short position of MTN. Check out your portfolio center. Please also check ongoing floating volatility patterns of AECI and MTN.
Diversification Opportunities for AECI and MTN
Pay attention - limited upside
The 3 months correlation between AECI and MTN is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding AECI and MTN Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTN Group and AECI 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 AECI are associated (or correlated) with MTN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTN Group has no effect on the direction of AECI i.e., AECI and MTN go up and down completely randomly.
Pair Corralation between AECI and MTN
Assuming the 90 days trading horizon AECI is expected to under-perform the MTN. But the stock apears to be less risky and, when comparing its historical volatility, AECI is 1.66 times less risky than MTN. The stock trades about -0.04 of its potential returns per unit of risk. The MTN Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 886,986 in MTN Group on November 5, 2024 and sell it today you would earn a total of 262,914 from holding MTN Group or generate 29.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
AECI vs. MTN Group
Performance |
| Timeline |
| AECI |
| MTN Group |
AECI and MTN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AECI and MTN
The main advantage of trading using opposite AECI and MTN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AECI position performs unexpectedly, MTN 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 MTN will offset losses from the drop in MTN's long position.| AECI vs. Nedbank Group | AECI vs. Harmony Gold Mining | AECI vs. Kumba Iron Ore | AECI vs. Standard Bank Group |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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