Correlation Between African Media and Truworths International

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

Diversification Opportunities for African Media and Truworths International

0.28

Correlation Coefficient

African Media  Truworths International

Modest diversification

The 3 months correlation between African and Truworths is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding African Media Entertainment and Truworths International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truworths International 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 Truworths International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truworths International has no effect on the direction of African Media i.e., African Media and Truworths International go up and down completely randomly.

Pair Corralation between African Media and Truworths International

Assuming the 90 days trading horizon African Media Entertainment is expected to generate 1.39 times more return on investment than Truworths International. However, African Media is 1.39 times more volatile than Truworths International. It trades about 0.07 of its potential returns per unit of risk. Truworths International is currently generating about -0.01 per unit of risk. If you would invest  402,854  in African Media Entertainment on September 23, 2024 and sell it today you would earn a total of  27,046  from holding African Media Entertainment or generate 6.71% return on investment over 90 days.

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

African Media Entertainment  vs.  Truworths International

African Media Entert

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in African Media Entertainment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Media exhibited solid returns over the last few months and may actually be approaching a breakup point.

Truworths International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Truworths International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Truworths International is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with African Media and Truworths International

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

The idea behind African Media Entertainment and Truworths International 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.