Correlation Between Dis Chem and Life Healthcare

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

Diversification Opportunities for Dis Chem and Life Healthcare

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Dis and Life is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dis Chem Pharmacies and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare 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 Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of Dis Chem i.e., Dis Chem and Life Healthcare go up and down completely randomly.

Pair Corralation between Dis Chem and Life Healthcare

Assuming the 90 days trading horizon Dis Chem Pharmacies is expected to generate 0.51 times more return on investment than Life Healthcare. However, Dis Chem Pharmacies is 1.94 times less risky than Life Healthcare. It trades about 0.08 of its potential returns per unit of risk. Life Healthcare is currently generating about 0.0 per unit of risk. If you would invest  288,683  in Dis Chem Pharmacies on October 9, 2024 and sell it today you would earn a total of  83,817  from holding Dis Chem Pharmacies or generate 29.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Dis Chem Pharmacies  vs.  Life Healthcare

 Performance 
       Timeline  
Dis Chem Pharmacies 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Life Healthcare 

Risk-Adjusted Performance

0 of 100

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

Dis Chem and Life Healthcare Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dis Chem and Life Healthcare

The main advantage of trading using opposite Dis Chem and Life Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dis Chem position performs unexpectedly, Life Healthcare 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 Life Healthcare will offset losses from the drop in Life Healthcare's long position.
The idea behind Dis Chem Pharmacies and Life Healthcare 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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