Correlation Between Dis Chem and JSE

Can any of the company-specific risk be diversified away by investing in both Dis Chem and JSE 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 JSE 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 JSE Limited, you can compare the effects of market volatilities on Dis Chem and JSE 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 JSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dis Chem and JSE.

Diversification Opportunities for Dis Chem and JSE

-0.24

Correlation Coefficient

Dis Chem  JSE

Very good diversification

The 3 months correlation between Dis and JSE is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dis Chem Pharmacies and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited 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 JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of Dis Chem i.e., Dis Chem and JSE go up and down completely randomly.

Pair Corralation between Dis Chem and JSE

Assuming the 90 days trading horizon Dis Chem Pharmacies is expected to generate 1.26 times more return on investment than JSE. However, Dis Chem is 1.26 times more volatile than JSE Limited. It trades about -0.02 of its potential returns per unit of risk. JSE Limited is currently generating about -0.07 per unit of risk. If you would invest  369,500  in Dis Chem Pharmacies on September 24, 2024 and sell it today you would lose (2,600) from holding Dis Chem Pharmacies or give up 0.7% of portfolio value over 90 days.

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

Dis Chem Pharmacies  vs.  JSE Limited

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.

JSE Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JSE Limited 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 JSE

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

The idea behind Dis Chem Pharmacies and JSE 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.