Correlation Between BANK OF AFRICA and MED PAPER

Can any of the company-specific risk be diversified away by investing in both BANK OF AFRICA and MED PAPER 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 MED PAPER 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 MED PAPER, you can compare the effects of market volatilities on BANK OF AFRICA and MED PAPER 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 MED PAPER. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK OF AFRICA and MED PAPER.

Diversification Opportunities for BANK OF AFRICA and MED PAPER

0.04

Correlation Coefficient

BANK OF AFRICA  MED PAPER

Significant diversification

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

Pair Corralation between BANK OF AFRICA and MED PAPER

Assuming the 90 days trading horizon BANK OF AFRICA is expected to generate 0.7 times more return on investment than MED PAPER. However, BANK OF AFRICA is 1.43 times less risky than MED PAPER. It trades about 0.12 of its potential returns per unit of risk. MED PAPER is currently generating about 0.02 per unit of risk. If you would invest  19,200  in BANK OF AFRICA on September 5, 2024 and sell it today you would earn a total of  500.00  from holding BANK OF AFRICA or generate 2.6% return on investment over 90 days.

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

BANK OF AFRICA  vs.  MED PAPER

BANK OF AFRICA

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BANK OF AFRICA are ranked lower than 2 (%) 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.

MED PAPER

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MED PAPER has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, MED PAPER is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with BANK OF AFRICA and MED PAPER

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

The idea behind BANK OF AFRICA and MED PAPER 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.