Correlation Between African Media and Sasol

Can any of the company-specific risk be diversified away by investing in both African Media 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 African Media and Sasol 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 Sasol Ltd Bee, you can compare the effects of market volatilities on African Media 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 African Media with a short position of Sasol. Check out your portfolio center. Please also check ongoing floating volatility patterns of African Media and Sasol.

Diversification Opportunities for African Media and Sasol

0.18

Correlation Coefficient

African Media  Sasol

Average diversification

The 3 months correlation between African and Sasol is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding African Media Entertainment and Sasol Ltd Bee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol Ltd Bee 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 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 Ltd Bee has no effect on the direction of African Media i.e., African Media and Sasol go up and down completely randomly.

Pair Corralation between African Media and Sasol

Assuming the 90 days trading horizon African Media Entertainment is expected to generate 1.13 times more return on investment than Sasol. However, African Media is 1.13 times more volatile than Sasol Ltd Bee. It trades about -0.04 of its potential returns per unit of risk. Sasol Ltd Bee is currently generating about -0.31 per unit of risk. If you would invest  416,000  in African Media Entertainment on September 5, 2024 and sell it today you would lose (16,000) from holding African Media Entertainment or give up 3.85% of portfolio value over 90 days.

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

African Media Entertainment  vs.  Sasol Ltd Bee

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.

Sasol Ltd Bee

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sasol Ltd Bee has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Etf's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with African Media and Sasol

The main advantage of trading using opposite African Media and Sasol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if African Media 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 African Media Entertainment and Sasol Ltd Bee 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.