Correlation Between African Discovery and Ashtead Group

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

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

Diversification Opportunities for African Discovery and Ashtead Group

0.23

Correlation Coefficient

African Discovery  Ashtead Group

Modest diversification

The 3 months correlation between African and Ashtead is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding African Discovery Group and Ashtead Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashtead Group plc and African Discovery 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 African Discovery Group are associated (or correlated) with Ashtead Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashtead Group plc has no effect on the direction of African Discovery i.e., African Discovery and Ashtead Group go up and down completely randomly.

Pair Corralation between African Discovery and Ashtead Group

Given the investment horizon of 90 days African Discovery Group is expected to generate 3.6 times more return on investment than Ashtead Group. However, African Discovery is 3.6 times more volatile than Ashtead Group plc. It trades about 0.08 of its potential returns per unit of risk. Ashtead Group plc is currently generating about -0.06 per unit of risk. If you would invest  0.70  in African Discovery Group on December 29, 2024 and sell it today you would earn a total of  0.20  from holding African Discovery Group or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

African Discovery Group  vs.  Ashtead Group plc

African Discovery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in African Discovery Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, African Discovery reported solid returns over the last few months and may actually be approaching a breakup point.

Ashtead Group plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ashtead Group plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with African Discovery and Ashtead Group

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

The idea behind African Discovery Group and Ashtead Group plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.