Correlation Between AIRTEL AFRICA and ECOBANK TRANSNATIONAL

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

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

Diversification Opportunities for AIRTEL AFRICA and ECOBANK TRANSNATIONAL

-0.7

Correlation Coefficient

AIRTEL AFRICA  ECOBANK TRANSNATIONAL

Excellent diversification

The 3 months correlation between AIRTEL and ECOBANK is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding AIRTEL AFRICA PLC and ECOBANK TRANSNATIONAL INCORPOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECOBANK TRANSNATIONAL and AIRTEL AFRICA 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 AIRTEL AFRICA PLC are associated (or correlated) with ECOBANK TRANSNATIONAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECOBANK TRANSNATIONAL has no effect on the direction of AIRTEL AFRICA i.e., AIRTEL AFRICA and ECOBANK TRANSNATIONAL go up and down completely randomly.

Pair Corralation between AIRTEL AFRICA and ECOBANK TRANSNATIONAL

Assuming the 90 days trading horizon AIRTEL AFRICA PLC is expected to under-perform the ECOBANK TRANSNATIONAL. But the stock apears to be less risky and, when comparing its historical volatility, AIRTEL AFRICA PLC is 6.86 times less risky than ECOBANK TRANSNATIONAL. The stock trades about -0.13 of its potential returns per unit of risk. The ECOBANK TRANSNATIONAL INCORPORATED is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,090  in ECOBANK TRANSNATIONAL INCORPORATED on September 5, 2024 and sell it today you would earn a total of  460.00  from holding ECOBANK TRANSNATIONAL INCORPORATED or generate 22.01% return on investment over 90 days.

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

AIRTEL AFRICA PLC  vs.  ECOBANK TRANSNATIONAL INCORPOR

AIRTEL AFRICA PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIRTEL AFRICA PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AIRTEL AFRICA is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

ECOBANK TRANSNATIONAL

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ECOBANK TRANSNATIONAL INCORPORATED are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, ECOBANK TRANSNATIONAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AIRTEL AFRICA and ECOBANK TRANSNATIONAL

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

The idea behind AIRTEL AFRICA PLC and ECOBANK TRANSNATIONAL INCORPORATED 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.