Correlation Between EAST AFRICAN and KENYA MERCIAL
Can any of the company-specific risk be diversified away by investing in both EAST AFRICAN and KENYA MERCIAL 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 EAST AFRICAN and KENYA MERCIAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EAST AFRICAN BREWERIES and KENYA MERCIAL BANK, you can compare the effects of market volatilities on EAST AFRICAN and KENYA MERCIAL 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 EAST AFRICAN with a short position of KENYA MERCIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of EAST AFRICAN and KENYA MERCIAL.
Diversification Opportunities for EAST AFRICAN and KENYA MERCIAL
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between EAST and KENYA is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding EAST AFRICAN BREWERIES and KENYA MERCIAL BANK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KENYA MERCIAL BANK and EAST AFRICAN 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 EAST AFRICAN BREWERIES are associated (or correlated) with KENYA MERCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KENYA MERCIAL BANK has no effect on the direction of EAST AFRICAN i.e., EAST AFRICAN and KENYA MERCIAL go up and down completely randomly.
Pair Corralation between EAST AFRICAN and KENYA MERCIAL
Assuming the 90 days trading horizon EAST AFRICAN BREWERIES is expected to generate 1.68 times more return on investment than KENYA MERCIAL. However, EAST AFRICAN is 1.68 times more volatile than KENYA MERCIAL BANK. It trades about 0.15 of its potential returns per unit of risk. KENYA MERCIAL BANK is currently generating about 0.19 per unit of risk. If you would invest 325,000 in EAST AFRICAN BREWERIES on November 4, 2024 and sell it today you would earn a total of 31,000 from holding EAST AFRICAN BREWERIES or generate 9.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EAST AFRICAN BREWERIES vs. KENYA MERCIAL BANK
Performance |
| Timeline |
| EAST AFRICAN BREWERIES |
| KENYA MERCIAL BANK |
EAST AFRICAN and KENYA MERCIAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EAST AFRICAN and KENYA MERCIAL
The main advantage of trading using opposite EAST AFRICAN and KENYA MERCIAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EAST AFRICAN position performs unexpectedly, KENYA MERCIAL 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 KENYA MERCIAL will offset losses from the drop in KENYA MERCIAL's long position.| EAST AFRICAN vs. YETU MICROFINANCE PLC | EAST AFRICAN vs. CRDB BANK LTD | EAST AFRICAN vs. NATION MEDIA GROUP | EAST AFRICAN vs. MWALIMU MERCIAL BANK |
| KENYA MERCIAL vs. YETU MICROFINANCE PLC | KENYA MERCIAL vs. CRDB BANK LTD | KENYA MERCIAL vs. NATION MEDIA GROUP | KENYA MERCIAL vs. MWALIMU MERCIAL BANK |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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