Correlation Between African Rainbow and AfricaRhodium ETF

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

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

Diversification Opportunities for African Rainbow and AfricaRhodium ETF

0.2

Correlation Coefficient

African Rainbow  AfricaRhodium ETF

Modest diversification

The 3 months correlation between African and AfricaRhodium is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding African Rainbow Minerals and AfricaRhodium ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AfricaRhodium ETF and African Rainbow 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 Rainbow Minerals are associated (or correlated) with AfricaRhodium ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AfricaRhodium ETF has no effect on the direction of African Rainbow i.e., African Rainbow and AfricaRhodium ETF go up and down completely randomly.

Pair Corralation between African Rainbow and AfricaRhodium ETF

Assuming the 90 days trading horizon African Rainbow Minerals is expected to under-perform the AfricaRhodium ETF. But the stock apears to be less risky and, when comparing its historical volatility, African Rainbow Minerals is 1.41 times less risky than AfricaRhodium ETF. The stock trades about -0.07 of its potential returns per unit of risk. The AfricaRhodium ETF is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  7,925,300  in AfricaRhodium ETF on September 15, 2024 and sell it today you would lose (475,400) from holding AfricaRhodium ETF or give up 6.0% of portfolio value over 90 days.

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

African Rainbow Minerals  vs.  AfricaRhodium ETF

African Rainbow Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days African Rainbow Minerals 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.

AfricaRhodium ETF

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with African Rainbow and AfricaRhodium ETF

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

The idea behind African Rainbow Minerals and AfricaRhodium ETF 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.