Correlation Between BANK OF AFRICA and M2M GROUP

Can any of the company-specific risk be diversified away by investing in both BANK OF AFRICA and M2M GROUP 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 BANK OF AFRICA and M2M GROUP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BANK OF AFRICA and M2M GROUP, you can compare the effects of market volatilities on BANK OF AFRICA and M2M GROUP 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 BANK OF AFRICA with a short position of M2M GROUP. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK OF AFRICA and M2M GROUP.

Diversification Opportunities for BANK OF AFRICA and M2M GROUP

0.04

Correlation Coefficient

BANK OF AFRICA  M2M GROUP

Significant diversification

The 3 months correlation between BANK and M2M is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BANK OF AFRICA and M2M GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M2M GROUP and BANK OF AFRICA 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 BANK OF AFRICA are associated (or correlated) with M2M GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M2M GROUP has no effect on the direction of BANK OF AFRICA i.e., BANK OF AFRICA and M2M GROUP go up and down completely randomly.

Pair Corralation between BANK OF AFRICA and M2M GROUP

Assuming the 90 days trading horizon BANK OF AFRICA is expected to generate 10.25 times less return on investment than M2M GROUP. But when comparing it to its historical volatility, BANK OF AFRICA is 3.02 times less risky than M2M GROUP. It trades about 0.01 of its potential returns per unit of risk. M2M GROUP is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  55,000  in M2M GROUP on September 12, 2024 and sell it today you would earn a total of  3,200  from holding M2M GROUP or generate 5.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

BANK OF AFRICA  vs.  M2M GROUP

BANK OF AFRICA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BANK OF AFRICA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BANK OF AFRICA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

M2M GROUP

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in M2M GROUP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, M2M GROUP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BANK OF AFRICA and M2M GROUP

The main advantage of trading using opposite BANK OF AFRICA and M2M GROUP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BANK OF AFRICA position performs unexpectedly, M2M GROUP 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 M2M GROUP will offset losses from the drop in M2M GROUP's long position.

The idea behind BANK OF AFRICA and M2M 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.