Correlation Between African Media and HomeChoice Investments

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Can any of the company-specific risk be diversified away by investing in both African Media and HomeChoice Investments 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 African Media and HomeChoice Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between African Media Entertainment and HomeChoice Investments, you can compare the effects of market volatilities on African Media and HomeChoice Investments 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 African Media with a short position of HomeChoice Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of African Media and HomeChoice Investments.

Diversification Opportunities for African Media and HomeChoice Investments

-0.07
  Correlation Coefficient

Good diversification

The 3 months correlation between African and HomeChoice is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding African Media Entertainment and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments and African Media 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 African Media Entertainment are associated (or correlated) with HomeChoice Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeChoice Investments has no effect on the direction of African Media i.e., African Media and HomeChoice Investments go up and down completely randomly.

Pair Corralation between African Media and HomeChoice Investments

Assuming the 90 days trading horizon African Media Entertainment is expected to generate 1.11 times more return on investment than HomeChoice Investments. However, African Media is 1.11 times more volatile than HomeChoice Investments. It trades about -0.07 of its potential returns per unit of risk. HomeChoice Investments is currently generating about -0.09 per unit of risk. If you would invest  415,000  in African Media Entertainment on August 24, 2024 and sell it today you would lose (25,000) from holding African Media Entertainment or give up 6.02% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

African Media Entertainment  vs.  HomeChoice Investments

 Performance 
       Timeline  
African Media Entert 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days African Media Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, African Media is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
HomeChoice Investments 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in HomeChoice Investments are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, HomeChoice Investments may actually be approaching a critical reversion point that can send shares even higher in December 2024.

African Media and HomeChoice Investments Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with African Media and HomeChoice Investments

The main advantage of trading using opposite African Media and HomeChoice Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if African Media position performs unexpectedly, HomeChoice Investments 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 HomeChoice Investments will offset losses from the drop in HomeChoice Investments' long position.
The idea behind African Media Entertainment and HomeChoice Investments 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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