Correlation Between AFRICAN DISTILLERS and STAR AFRICA

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

Diversification Opportunities for AFRICAN DISTILLERS and STAR AFRICA

0.11

Correlation Coefficient

AFRICAN DISTILLERS  STAR AFRICA

Average diversification

The 3 months correlation between AFRICAN and STAR is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding AFRICAN DISTILLERS LIMITED and STAR AFRICA PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STAR AFRICA PORATION 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 STAR AFRICA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STAR AFRICA PORATION has no effect on the direction of AFRICAN DISTILLERS i.e., AFRICAN DISTILLERS and STAR AFRICA go up and down completely randomly.

Pair Corralation between AFRICAN DISTILLERS and STAR AFRICA

Assuming the 90 days trading horizon AFRICAN DISTILLERS is expected to generate 1.55 times less return on investment than STAR AFRICA. But when comparing it to its historical volatility, AFRICAN DISTILLERS LIMITED is 1.66 times less risky than STAR AFRICA. It trades about 0.02 of its potential returns per unit of risk. STAR AFRICA PORATION is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  210.00  in STAR AFRICA PORATION on October 12, 2024 and sell it today you would lose (10.00) from holding STAR AFRICA PORATION or give up 4.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

AFRICAN DISTILLERS LIMITED  vs.  STAR AFRICA PORATION

AFRICAN DISTILLERS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AFRICAN DISTILLERS LIMITED are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, AFRICAN DISTILLERS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

STAR AFRICA PORATION

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STAR AFRICA PORATION are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, STAR AFRICA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with AFRICAN DISTILLERS and STAR AFRICA

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

The idea behind AFRICAN DISTILLERS LIMITED and STAR AFRICA PORATION 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.