Correlation Between CAFCA and AFRICAN DISTILLERS

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

By analyzing existing cross correlation between CAFCA LIMITED and AFRICAN DISTILLERS LIMITED, you can compare the effects of market volatilities on CAFCA and AFRICAN DISTILLERS 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 CAFCA with a short position of AFRICAN DISTILLERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAFCA and AFRICAN DISTILLERS.

Diversification Opportunities for CAFCA and AFRICAN DISTILLERS

-0.26

Correlation Coefficient

CAFCA  AFRICAN DISTILLERS

Very good diversification

The 3 months correlation between CAFCA and AFRICAN is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding CAFCA LIMITED and AFRICAN DISTILLERS LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFRICAN DISTILLERS and CAFCA 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 CAFCA LIMITED are associated (or correlated) with AFRICAN DISTILLERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFRICAN DISTILLERS has no effect on the direction of CAFCA i.e., CAFCA and AFRICAN DISTILLERS go up and down completely randomly.

Pair Corralation between CAFCA and AFRICAN DISTILLERS

Assuming the 90 days trading horizon CAFCA LIMITED is expected to generate 0.82 times more return on investment than AFRICAN DISTILLERS. However, CAFCA LIMITED is 1.22 times less risky than AFRICAN DISTILLERS. It trades about 0.23 of its potential returns per unit of risk. AFRICAN DISTILLERS LIMITED is currently generating about 0.02 per unit of risk. If you would invest  140,000  in CAFCA LIMITED on October 12, 2024 and sell it today you would earn a total of  65,000  from holding CAFCA LIMITED or generate 46.43% return on investment over 90 days.

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

CAFCA LIMITED  vs.  AFRICAN DISTILLERS LIMITED

CAFCA LIMITED

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAFCA LIMITED are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, CAFCA showed solid returns over the last few months and may actually be approaching a breakup point.

AFRICAN DISTILLERS

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AFRICAN DISTILLERS LIMITED are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, AFRICAN DISTILLERS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CAFCA and AFRICAN DISTILLERS

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

The idea behind CAFCA LIMITED and AFRICAN DISTILLERS LIMITED 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.