Correlation Between Toro and African Agriculture
Can any of the company-specific risk be diversified away by investing in both Toro and African Agriculture 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 Toro and African Agriculture into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Toro Co and African Agriculture Holdings, you can compare the effects of market volatilities on Toro and African Agriculture 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 Toro with a short position of African Agriculture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toro and African Agriculture.
Diversification Opportunities for Toro and African Agriculture
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Toro and African is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and African Agriculture Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Agriculture and Toro 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 Toro Co are associated (or correlated) with African Agriculture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Agriculture has no effect on the direction of Toro i.e., Toro and African Agriculture go up and down completely randomly.
Pair Corralation between Toro and African Agriculture
Considering the 90-day investment horizon Toro Co is expected to under-perform the African Agriculture. But the stock apears to be less risky and, when comparing its historical volatility, Toro Co is 13.88 times less risky than African Agriculture. The stock trades about -0.02 of its potential returns per unit of risk. The African Agriculture Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6.27 in African Agriculture Holdings on September 4, 2024 and sell it today you would lose (5.90) from holding African Agriculture Holdings or give up 94.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 82.02% |
| Values | Daily Returns |
Toro Co vs. African Agriculture Holdings
Performance |
| Timeline |
| Toro |
| African Agriculture |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Toro and African Agriculture Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Toro and African Agriculture
The main advantage of trading using opposite Toro and African Agriculture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toro position performs unexpectedly, African Agriculture 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 African Agriculture will offset losses from the drop in African Agriculture's long position.The idea behind Toro Co and African Agriculture Holdings 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.| African Agriculture vs. Comstock Holding Companies | African Agriculture vs. Hillman Solutions Corp | African Agriculture vs. Acme United | African Agriculture vs. CapitaLand Investment Limited |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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