Correlation Between Ashtead Group and African Discovery

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

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

Diversification Opportunities for Ashtead Group and African Discovery

-0.63

Correlation Coefficient

Ashtead Group  African Discovery

Excellent diversification

The 3 months correlation between Ashtead and African is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Ashtead Group plc and African Discovery Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Discovery and Ashtead Group 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 Ashtead Group plc are associated (or correlated) with African Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Discovery has no effect on the direction of Ashtead Group i.e., Ashtead Group and African Discovery go up and down completely randomly.

Pair Corralation between Ashtead Group and African Discovery

Assuming the 90 days horizon Ashtead Group is expected to generate 8.57 times less return on investment than African Discovery. But when comparing it to its historical volatility, Ashtead Group plc is 7.29 times less risky than African Discovery. It trades about 0.04 of its potential returns per unit of risk. African Discovery Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.20  in African Discovery Group on September 3, 2024 and sell it today you would lose (2.80) from holding African Discovery Group or give up 87.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.59%
Values	Daily Returns

Ashtead Group plc  vs.  African Discovery Group

Ashtead Group plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ashtead Group plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ashtead Group reported solid returns over the last few months and may actually be approaching a breakup point.

African Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days African Discovery Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ashtead Group and African Discovery

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

The idea behind Ashtead Group plc and African Discovery Group 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..