Correlation Between Blue Label and Sasol

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

By analyzing existing cross correlation between Blue Label Telecoms and Sasol Ltd Bee, you can compare the effects of market volatilities on Blue Label and Sasol 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 Blue Label with a short position of Sasol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Label and Sasol.

Diversification Opportunities for Blue Label and Sasol

-0.3

Correlation Coefficient

Blue Label  Sasol

Very good diversification

The 3 months correlation between Blue and Sasol is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Blue Label Telecoms and Sasol Ltd Bee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol Ltd Bee and Blue Label 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 Blue Label Telecoms are associated (or correlated) with Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol Ltd Bee has no effect on the direction of Blue Label i.e., Blue Label and Sasol go up and down completely randomly.

Pair Corralation between Blue Label and Sasol

Assuming the 90 days trading horizon Blue Label is expected to generate 2.0 times less return on investment than Sasol. But when comparing it to its historical volatility, Blue Label Telecoms is 7.44 times less risky than Sasol. It trades about 0.03 of its potential returns per unit of risk. Sasol Ltd Bee is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,020,000  in Sasol Ltd Bee on October 24, 2024 and sell it today you would lose (310,000) from holding Sasol Ltd Bee or give up 30.39% of portfolio value over 90 days.

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

Blue Label Telecoms  vs.  Sasol Ltd Bee

Blue Label Telecoms

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Label Telecoms are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Blue Label is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sasol Ltd Bee

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Sasol Ltd Bee has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Sasol is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Blue Label and Sasol

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

The idea behind Blue Label Telecoms and Sasol Ltd Bee 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.