Correlation Between African Rainbow and Sasol

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

Diversification Opportunities for African Rainbow and Sasol

0.8

Correlation Coefficient

African Rainbow  Sasol

Very poor diversification

The 3 months correlation between African and Sasol is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding African Rainbow Minerals 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 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 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 Rainbow i.e., African Rainbow and Sasol go up and down completely randomly.

Pair Corralation between African Rainbow and Sasol

Assuming the 90 days trading horizon African Rainbow Minerals is expected to under-perform the Sasol. But the stock apears to be less risky and, when comparing its historical volatility, African Rainbow Minerals is 1.88 times less risky than Sasol. The stock trades about -0.04 of its potential returns per unit of risk. The Sasol Ltd Bee is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,603,800  in Sasol Ltd Bee on September 14, 2024 and sell it today you would lose (803,800) from holding Sasol Ltd Bee or give up 50.12% of portfolio value over 90 days.

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

African Rainbow Minerals  vs.  Sasol Ltd Bee

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.

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 Rainbow and Sasol

The main advantage of trading using opposite African Rainbow and Sasol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if African Rainbow 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 Rainbow Minerals 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..