Correlation Between CAFCA and ECONET WIRELESS

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

By analyzing existing cross correlation between CAFCA LIMITED and ECONET WIRELESS HOLDINGS, you can compare the effects of market volatilities on CAFCA and ECONET WIRELESS 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 ECONET WIRELESS. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAFCA and ECONET WIRELESS.

Diversification Opportunities for CAFCA and ECONET WIRELESS

0.85

Correlation Coefficient

CAFCA  ECONET WIRELESS

Very poor diversification

The 3 months correlation between CAFCA and ECONET is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CAFCA LIMITED and ECONET WIRELESS HOLDINGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECONET WIRELESS HOLDINGS 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 ECONET WIRELESS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECONET WIRELESS HOLDINGS has no effect on the direction of CAFCA i.e., CAFCA and ECONET WIRELESS go up and down completely randomly.

Pair Corralation between CAFCA and ECONET WIRELESS

Assuming the 90 days trading horizon CAFCA is expected to generate 2.25 times less return on investment than ECONET WIRELESS. But when comparing it to its historical volatility, CAFCA LIMITED is 1.52 times less risky than ECONET WIRELESS. It trades about 0.06 of its potential returns per unit of risk. ECONET WIRELESS HOLDINGS is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  34,095  in ECONET WIRELESS HOLDINGS on December 22, 2024 and sell it today you would earn a total of  5,823  from holding ECONET WIRELESS HOLDINGS or generate 17.08% return on investment over 90 days.

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

CAFCA LIMITED  vs.  ECONET WIRELESS HOLDINGS

CAFCA LIMITED

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CAFCA LIMITED are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, CAFCA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

ECONET WIRELESS HOLDINGS

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ECONET WIRELESS HOLDINGS are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, ECONET WIRELESS demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAFCA and ECONET WIRELESS

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

The idea behind CAFCA LIMITED and ECONET WIRELESS HOLDINGS 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.