Correlation Between African Rainbow and HomeChoice Investments
Can any of the company-specific risk be diversified away by investing in both African Rainbow 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 Rainbow 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 Rainbow Minerals and HomeChoice Investments, you can compare the effects of market volatilities on African Rainbow 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 Rainbow with a short position of HomeChoice Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of African Rainbow and HomeChoice Investments.
Diversification Opportunities for African Rainbow and HomeChoice Investments
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between African and HomeChoice is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding African Rainbow Minerals and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments and African Rainbow 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 Rainbow Minerals 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 Rainbow i.e., African Rainbow and HomeChoice Investments go up and down completely randomly.
Pair Corralation between African Rainbow and HomeChoice Investments
Assuming the 90 days trading horizon African Rainbow Minerals is expected to generate 0.36 times more return on investment than HomeChoice Investments. However, African Rainbow Minerals is 2.81 times less risky than HomeChoice Investments. It trades about -0.31 of its potential returns per unit of risk. HomeChoice Investments is currently generating about -0.21 per unit of risk. If you would invest 1,789,700 in African Rainbow Minerals on September 3, 2024 and sell it today you would lose (199,500) from holding African Rainbow Minerals or give up 11.15% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
African Rainbow Minerals vs. HomeChoice Investments
Performance |
| Timeline |
| African Rainbow Minerals |
| HomeChoice Investments |
African Rainbow and HomeChoice Investments Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with African Rainbow and HomeChoice Investments
The main advantage of trading using opposite African Rainbow and HomeChoice Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if African Rainbow 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.| African Rainbow vs. Zeder Investments | African Rainbow vs. We Buy Cars | African Rainbow vs. Harmony Gold Mining | African Rainbow vs. Kap Industrial Holdings |
| HomeChoice Investments vs. Foschini Group | HomeChoice Investments vs. Sasol Ltd Bee | HomeChoice Investments vs. Centaur Bci Balanced | HomeChoice Investments vs. Growthpoint Properties |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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