Correlation Between Allied Electronics and Sasol

Can any of the company-specific risk be diversified away by investing in both Allied Electronics and Sasol 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 Allied Electronics and Sasol into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Allied Electronics and Sasol, you can compare the effects of market volatilities on Allied Electronics and Sasol 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 Allied Electronics with a short position of Sasol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Electronics and Sasol.

Diversification Opportunities for Allied Electronics and Sasol

0.72

Correlation Coefficient

Allied Electronics  Sasol

Poor diversification

The 3 months correlation between Allied and Sasol is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Allied Electronics and Sasol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol and Allied Electronics 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 Allied Electronics are associated (or correlated) with Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol has no effect on the direction of Allied Electronics i.e., Allied Electronics and Sasol go up and down completely randomly.

Pair Corralation between Allied Electronics and Sasol

Assuming the 90 days trading horizon Allied Electronics is expected to generate 0.52 times more return on investment than Sasol. However, Allied Electronics is 1.91 times less risky than Sasol. It trades about -0.03 of its potential returns per unit of risk. Sasol is currently generating about -0.02 per unit of risk. If you would invest  208,000  in Allied Electronics on December 27, 2024 and sell it today you would lose (9,500) from holding Allied Electronics or give up 4.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Allied Electronics  vs.  Sasol

Allied Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Allied Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Allied Electronics is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sasol

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sasol has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Sasol is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Allied Electronics and Sasol

The main advantage of trading using opposite Allied Electronics and Sasol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Electronics position performs unexpectedly, Sasol 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 Sasol will offset losses from the drop in Sasol's long position.

The idea behind Allied Electronics and Sasol 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.

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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 Global Correlations module to find global opportunities by holding instruments from different markets.