Correlation Between Challenger and West African
Can any of the company-specific risk be diversified away by investing in both Challenger and West African 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 Challenger and West African into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Challenger and West African Resources, you can compare the effects of market volatilities on Challenger and West African 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 Challenger with a short position of West African. Check out your portfolio center. Please also check ongoing floating volatility patterns of Challenger and West African.
Diversification Opportunities for Challenger and West African
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Challenger and West is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Challenger and West African Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West African Resources and Challenger 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 Challenger are associated (or correlated) with West African. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West African Resources has no effect on the direction of Challenger i.e., Challenger and West African go up and down completely randomly.
Pair Corralation between Challenger and West African
Assuming the 90 days trading horizon Challenger is expected to under-perform the West African. But the stock apears to be less risky and, when comparing its historical volatility, Challenger is 2.12 times less risky than West African. The stock trades about -0.01 of its potential returns per unit of risk. The West African Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 143.00 in West African Resources on August 28, 2024 and sell it today you would earn a total of 7.00 from holding West African Resources or generate 4.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.22% |
| Values | Daily Returns |
Challenger vs. West African Resources
Performance |
| Timeline |
| Challenger |
| West African Resources |
Challenger and West African Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Challenger and West African
The main advantage of trading using opposite Challenger and West African positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Challenger position performs unexpectedly, West African 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 West African will offset losses from the drop in West African's long position.The idea behind Challenger and West African Resources 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.| West African vs. Finexia Financial Group | West African vs. Macquarie Bank Limited | West African vs. TPG Telecom | West African vs. Hotel Property Investments |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
Other Complementary Tools
| CEOs Directory Screen CEOs from public companies around the world | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk |