Correlation Between African Discovery and Ashtead Gro

Can any of the company-specific risk be diversified away by investing in both African Discovery and Ashtead Gro 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 Gro 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 Gro, you can compare the effects of market volatilities on African Discovery and Ashtead Gro 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 Gro. Check out your portfolio center. Please also check ongoing floating volatility patterns of African Discovery and Ashtead Gro.

Diversification Opportunities for African Discovery and Ashtead Gro

0.21

Correlation Coefficient

African Discovery  Ashtead Gro

Modest diversification

The 3 months correlation between African and Ashtead is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding African Discovery Group and Ashtead Gro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashtead Gro 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 Gro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashtead Gro has no effect on the direction of African Discovery i.e., African Discovery and Ashtead Gro go up and down completely randomly.

Pair Corralation between African Discovery and Ashtead Gro

Given the investment horizon of 90 days African Discovery Group is expected to generate 5.37 times more return on investment than Ashtead Gro. However, African Discovery is 5.37 times more volatile than Ashtead Gro. It trades about 0.08 of its potential returns per unit of risk. Ashtead Gro 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 Gro

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 Gro

Risk-Adjusted Performance

Very Weak

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

Pair Trading with African Discovery and Ashtead Gro

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

The idea behind African Discovery Group and Ashtead Gro 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.