Correlation Between BCE and Airtel Africa

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

By analyzing existing cross correlation between BCE Inc and Airtel Africa Plc, you can compare the effects of market volatilities on BCE and Airtel Africa 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 BCE with a short position of Airtel Africa. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Airtel Africa.

Diversification Opportunities for BCE and Airtel Africa

0.43

Correlation Coefficient

BCE  Airtel Africa

Very weak diversification

The 3 months correlation between BCE and Airtel is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Airtel Africa Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airtel Africa Plc and BCE 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 BCE Inc are associated (or correlated) with Airtel Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airtel Africa Plc has no effect on the direction of BCE i.e., BCE and Airtel Africa go up and down completely randomly.

Pair Corralation between BCE and Airtel Africa

Assuming the 90 days horizon BCE is expected to generate 23.27 times less return on investment than Airtel Africa. But when comparing it to its historical volatility, BCE Inc is 18.1 times less risky than Airtel Africa. It trades about 0.13 of its potential returns per unit of risk. Airtel Africa Plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  125.00  in Airtel Africa Plc on December 20, 2024 and sell it today you would earn a total of  90.00  from holding Airtel Africa Plc or generate 72.0% return on investment over 90 days.

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

BCE Inc  vs.  Airtel Africa Plc

BCE Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BCE Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BCE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Airtel Africa Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Airtel Africa Plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Airtel Africa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BCE and Airtel Africa

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

The idea behind BCE Inc and Airtel Africa Plc 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.