Correlation Between AFRICAN DISTILLERS and ECONET WIRELESS

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

By analyzing existing cross correlation between AFRICAN DISTILLERS LIMITED and ECONET WIRELESS HOLDINGS, you can compare the effects of market volatilities on AFRICAN DISTILLERS and ECONET WIRELESS 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 DISTILLERS with a short position of ECONET WIRELESS. Check out your portfolio center. Please also check ongoing floating volatility patterns of AFRICAN DISTILLERS and ECONET WIRELESS.

Diversification Opportunities for AFRICAN DISTILLERS and ECONET WIRELESS

0.63

Correlation Coefficient

AFRICAN DISTILLERS  ECONET WIRELESS

Poor diversification

The 3 months correlation between AFRICAN and ECONET is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding AFRICAN DISTILLERS LIMITED and ECONET WIRELESS HOLDINGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECONET WIRELESS HOLDINGS and AFRICAN DISTILLERS 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 DISTILLERS LIMITED are associated (or correlated) with ECONET WIRELESS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECONET WIRELESS HOLDINGS has no effect on the direction of AFRICAN DISTILLERS i.e., AFRICAN DISTILLERS and ECONET WIRELESS go up and down completely randomly.

Pair Corralation between AFRICAN DISTILLERS and ECONET WIRELESS

Assuming the 90 days trading horizon AFRICAN DISTILLERS LIMITED is expected to generate 0.56 times more return on investment than ECONET WIRELESS. However, AFRICAN DISTILLERS LIMITED is 1.79 times less risky than ECONET WIRELESS. It trades about -0.06 of its potential returns per unit of risk. ECONET WIRELESS HOLDINGS is currently generating about -0.12 per unit of risk. If you would invest  80,800  in AFRICAN DISTILLERS LIMITED on October 27, 2024 and sell it today you would lose (10,800) from holding AFRICAN DISTILLERS LIMITED or give up 13.37% of portfolio value over 90 days.

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

AFRICAN DISTILLERS LIMITED  vs.  ECONET WIRELESS HOLDINGS

AFRICAN DISTILLERS

Risk-Adjusted Performance

0 of 100

Very Weak

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

ECONET WIRELESS HOLDINGS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECONET WIRELESS HOLDINGS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with AFRICAN DISTILLERS and ECONET WIRELESS

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

The idea behind AFRICAN DISTILLERS LIMITED and ECONET WIRELESS 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.