Correlation Between TANZANIA PORTLAND and EAST AFRICAN
Can any of the company-specific risk be diversified away by investing in both TANZANIA PORTLAND and EAST 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 TANZANIA PORTLAND and EAST AFRICAN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between TANZANIA PORTLAND CEMENT and EAST AFRICAN BREWERIES, you can compare the effects of market volatilities on TANZANIA PORTLAND and EAST 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 TANZANIA PORTLAND with a short position of EAST AFRICAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of TANZANIA PORTLAND and EAST AFRICAN.
Diversification Opportunities for TANZANIA PORTLAND and EAST AFRICAN
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between TANZANIA and EAST is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding TANZANIA PORTLAND CEMENT and EAST AFRICAN BREWERIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAST AFRICAN BREWERIES and TANZANIA PORTLAND 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 TANZANIA PORTLAND CEMENT are associated (or correlated) with EAST AFRICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EAST AFRICAN BREWERIES has no effect on the direction of TANZANIA PORTLAND i.e., TANZANIA PORTLAND and EAST AFRICAN go up and down completely randomly.
Pair Corralation between TANZANIA PORTLAND and EAST AFRICAN
Assuming the 90 days trading horizon TANZANIA PORTLAND CEMENT is expected to generate 2.02 times more return on investment than EAST AFRICAN. However, TANZANIA PORTLAND is 2.02 times more volatile than EAST AFRICAN BREWERIES. It trades about 0.4 of its potential returns per unit of risk. EAST AFRICAN BREWERIES is currently generating about 0.33 per unit of risk. If you would invest 304,000 in TANZANIA PORTLAND CEMENT on October 25, 2024 and sell it today you would earn a total of 72,000 from holding TANZANIA PORTLAND CEMENT or generate 23.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
TANZANIA PORTLAND CEMENT vs. EAST AFRICAN BREWERIES
Performance |
| Timeline |
| TANZANIA PORTLAND CEMENT |
| EAST AFRICAN BREWERIES |
TANZANIA PORTLAND and EAST AFRICAN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with TANZANIA PORTLAND and EAST AFRICAN
The main advantage of trading using opposite TANZANIA PORTLAND and EAST AFRICAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TANZANIA PORTLAND position performs unexpectedly, EAST 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 EAST AFRICAN will offset losses from the drop in EAST AFRICAN's long position.| TANZANIA PORTLAND vs. YETU MICROFINANCE PLC | TANZANIA PORTLAND vs. MUCOBA BANK PLC | TANZANIA PORTLAND vs. TOL GASES LTD | TANZANIA PORTLAND vs. EAST AFRICAN BREWERIES |
| EAST AFRICAN vs. YETU MICROFINANCE PLC | EAST AFRICAN vs. MUCOBA BANK PLC | EAST AFRICAN vs. TANZANIA PORTLAND CEMENT | EAST AFRICAN vs. TOL GASES LTD |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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