Correlation Between African Media and Life Healthcare

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

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

Diversification Opportunities for African Media and Life Healthcare

0.08

Correlation Coefficient

African Media  Life Healthcare

Significant diversification

The 3 months correlation between African and Life is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding African Media Entertainment and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare and African Media 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 Media Entertainment are associated (or correlated) with Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of African Media i.e., African Media and Life Healthcare go up and down completely randomly.

Pair Corralation between African Media and Life Healthcare

Assuming the 90 days trading horizon African Media is expected to generate 2.41 times less return on investment than Life Healthcare. In addition to that, African Media is 1.48 times more volatile than Life Healthcare. It trades about 0.04 of its total potential returns per unit of risk. Life Healthcare is currently generating about 0.15 per unit of volatility. If you would invest  144,600  in Life Healthcare on September 5, 2024 and sell it today you would earn a total of  27,900  from holding Life Healthcare or generate 19.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

African Media Entertainment  vs.  Life Healthcare

African Media Entert

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in African Media Entertainment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Media may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Life Healthcare

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Life Healthcare are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Life Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with African Media and Life Healthcare

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

The idea behind African Media Entertainment and Life Healthcare 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.