Correlation Between Vodacom and Blue Label
Can any of the company-specific risk be diversified away by investing in both Vodacom and Blue Label 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 Vodacom and Blue Label into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vodacom Group and Blue Label Telecoms, you can compare the effects of market volatilities on Vodacom and Blue Label 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 Vodacom with a short position of Blue Label. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vodacom and Blue Label.
Diversification Opportunities for Vodacom and Blue Label
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Vodacom and Blue is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Vodacom Group and Blue Label Telecoms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Label Telecoms and Vodacom 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 Vodacom Group are associated (or correlated) with Blue Label. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Label Telecoms has no effect on the direction of Vodacom i.e., Vodacom and Blue Label go up and down completely randomly.
Pair Corralation between Vodacom and Blue Label
Assuming the 90 days trading horizon Vodacom Group is expected to under-perform the Blue Label. In addition to that, Vodacom is 1.73 times more volatile than Blue Label Telecoms. It trades about -0.12 of its total potential returns per unit of risk. Blue Label Telecoms is currently generating about -0.18 per unit of volatility. If you would invest 55,300 in Blue Label Telecoms on September 2, 2024 and sell it today you would lose (2,100) from holding Blue Label Telecoms or give up 3.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vodacom Group vs. Blue Label Telecoms
Performance |
| Timeline |
| Vodacom Group |
| Blue Label Telecoms |
Vodacom and Blue Label Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vodacom and Blue Label
The main advantage of trading using opposite Vodacom and Blue Label positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vodacom position performs unexpectedly, Blue Label 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 Blue Label will offset losses from the drop in Blue Label's long position.The idea behind Vodacom Group and Blue Label Telecoms 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.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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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