Correlation Between BANK OF AFRICA and MICRODATA

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

Diversification Opportunities for BANK OF AFRICA and MICRODATA

-0.08

Correlation Coefficient

BANK OF AFRICA  MICRODATA

Good diversification

The 3 months correlation between BANK and MICRODATA is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding BANK OF AFRICA and MICRODATA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MICRODATA 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 MICRODATA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MICRODATA has no effect on the direction of BANK OF AFRICA i.e., BANK OF AFRICA and MICRODATA go up and down completely randomly.

Pair Corralation between BANK OF AFRICA and MICRODATA

Assuming the 90 days trading horizon BANK OF AFRICA is expected to under-perform the MICRODATA. But the stock apears to be less risky and, when comparing its historical volatility, BANK OF AFRICA is 2.03 times less risky than MICRODATA. The stock trades about -0.01 of its potential returns per unit of risk. The MICRODATA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  62,500  in MICRODATA on September 12, 2024 and sell it today you would earn a total of  1,500  from holding MICRODATA or generate 2.4% return on investment over 90 days.

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

BANK OF AFRICA  vs.  MICRODATA

BANK OF AFRICA

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days BANK OF AFRICA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

MICRODATA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MICRODATA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, MICRODATA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BANK OF AFRICA and MICRODATA

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

The idea behind BANK OF AFRICA and MICRODATA 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.