Correlation Between Dis Chem and Firstrand

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

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

Diversification Opportunities for Dis Chem and Firstrand

0.22

Correlation Coefficient

Dis Chem  Firstrand

Modest diversification

The 3 months correlation between Dis and Firstrand is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dis Chem Pharmacies and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand and Dis Chem 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 Dis Chem Pharmacies are associated (or correlated) with Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of Dis Chem i.e., Dis Chem and Firstrand go up and down completely randomly.

Pair Corralation between Dis Chem and Firstrand

Assuming the 90 days trading horizon Dis Chem Pharmacies is expected to under-perform the Firstrand. But the stock apears to be less risky and, when comparing its historical volatility, Dis Chem Pharmacies is 1.31 times less risky than Firstrand. The stock trades about -0.17 of its potential returns per unit of risk. The Firstrand is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  774,200  in Firstrand on October 20, 2024 and sell it today you would lose (9,700) from holding Firstrand or give up 1.25% of portfolio value over 90 days.

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

Dis Chem Pharmacies  vs.  Firstrand

Dis Chem Pharmacies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dis Chem Pharmacies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Dis Chem is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Firstrand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Dis Chem and Firstrand

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

The idea behind Dis Chem Pharmacies and Firstrand 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.