Correlation Between Firstrand and Allied Electronics
Can any of the company-specific risk be diversified away by investing in both Firstrand and Allied Electronics 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 Firstrand and Allied Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Firstrand and Allied Electronics, you can compare the effects of market volatilities on Firstrand and Allied Electronics 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 Firstrand with a short position of Allied Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Firstrand and Allied Electronics.
Diversification Opportunities for Firstrand and Allied Electronics
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Firstrand and Allied is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand and Allied Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Electronics and Firstrand 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 Firstrand are associated (or correlated) with Allied Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Electronics has no effect on the direction of Firstrand i.e., Firstrand and Allied Electronics go up and down completely randomly.
Pair Corralation between Firstrand and Allied Electronics
Assuming the 90 days trading horizon Firstrand is expected to under-perform the Allied Electronics. But the stock apears to be less risky and, when comparing its historical volatility, Firstrand is 1.42 times less risky than Allied Electronics. The stock trades about -0.02 of its potential returns per unit of risk. The Allied Electronics is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 187,000 in Allied Electronics on September 3, 2024 and sell it today you would earn a total of 15,000 from holding Allied Electronics or generate 8.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Firstrand vs. Allied Electronics
Performance |
| Timeline |
| Firstrand |
| Allied Electronics |
Firstrand and Allied Electronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Firstrand and Allied Electronics
The main advantage of trading using opposite Firstrand and Allied Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Firstrand position performs unexpectedly, Allied Electronics 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 Allied Electronics will offset losses from the drop in Allied Electronics' long position.| Firstrand vs. Sasol Ltd Bee | Firstrand vs. Centaur Bci Balanced | Firstrand vs. Sabvest Capital | Firstrand vs. Growthpoint Properties |
| Allied Electronics vs. Lesaka Technologies | Allied Electronics vs. Astral Foods | Allied Electronics vs. Kap Industrial Holdings | Allied Electronics vs. Reinet Investments SCA |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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