Correlation Between AECI and Sasol

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

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

Diversification Opportunities for AECI and Sasol

0.71

Correlation Coefficient

AECI  Sasol

Poor diversification

The 3 months correlation between AECI and Sasol is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding AECI and Sasol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol and AECI 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 AECI 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 AECI i.e., AECI and Sasol go up and down completely randomly.

Pair Corralation between AECI and Sasol

Assuming the 90 days trading horizon AECI is expected to under-perform the Sasol. But the stock apears to be less risky and, when comparing its historical volatility, AECI is 3.05 times less risky than Sasol. The stock trades about -0.27 of its potential returns per unit of risk. The Sasol is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  840,500  in Sasol on October 20, 2024 and sell it today you would earn a total of  181,100  from holding Sasol or generate 21.55% return on investment over 90 days.

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

AECI  vs.  Sasol

AECI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AECI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sasol

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with AECI and Sasol

The main advantage of trading using opposite AECI and Sasol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AECI 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 AECI 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.

Check out your portfolio center.

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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.