Correlation Between Alumina Limited and Shoprite Holdings

Can any of the company-specific risk be diversified away by investing in both Alumina Limited and Shoprite Holdings 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 Alumina Limited and Shoprite Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alumina Limited PK and Shoprite Holdings Limited, you can compare the effects of market volatilities on Alumina Limited and Shoprite Holdings 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 Alumina Limited with a short position of Shoprite Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alumina Limited and Shoprite Holdings.

Diversification Opportunities for Alumina Limited and Shoprite Holdings

-0.53

Correlation Coefficient

Alumina Limited  Shoprite Holdings

Excellent diversification

The 3 months correlation between Alumina and Shoprite is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alumina Limited PK and Shoprite Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Alumina Limited 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 Alumina Limited PK are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Alumina Limited i.e., Alumina Limited and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Alumina Limited and Shoprite Holdings

Assuming the 90 days horizon Alumina Limited is expected to generate 8.82 times less return on investment than Shoprite Holdings. But when comparing it to its historical volatility, Alumina Limited PK is 1.06 times less risky than Shoprite Holdings. It trades about 0.01 of its potential returns per unit of risk. Shoprite Holdings Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,218  in Shoprite Holdings Limited on September 23, 2024 and sell it today you would earn a total of  415.00  from holding Shoprite Holdings Limited or generate 34.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	63.57%
Values	Daily Returns

Alumina Limited PK  vs.  Shoprite Holdings Limited

Alumina Limited PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumina Limited PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Alumina Limited is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Shoprite Holdings

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Shoprite Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak technical and fundamental indicators, Shoprite Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alumina Limited and Shoprite Holdings

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

The idea behind Alumina Limited PK and Shoprite Holdings Limited 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.