Correlation Between Discovery Holdings and Shoprite Holdings

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

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

Diversification Opportunities for Discovery Holdings and Shoprite Holdings

0.52

Correlation Coefficient

Discovery Holdings  Shoprite Holdings

Very weak diversification

The 3 months correlation between Discovery and Shoprite is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Discovery Holdings and Shoprite Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Discovery Holdings 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 Discovery Holdings are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Discovery Holdings i.e., Discovery Holdings and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Discovery Holdings and Shoprite Holdings

Assuming the 90 days trading horizon Discovery Holdings is expected to generate 1.0 times more return on investment than Shoprite Holdings. However, Discovery Holdings is 1.0 times less risky than Shoprite Holdings. It trades about 0.1 of its potential returns per unit of risk. Shoprite Holdings is currently generating about 0.06 per unit of risk. If you would invest  1,261,537  in Discovery Holdings on September 24, 2024 and sell it today you would earn a total of  696,763  from holding Discovery Holdings or generate 55.23% return on investment over 90 days.

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

Discovery Holdings  vs.  Shoprite Holdings

Discovery Holdings

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Discovery Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Discovery Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shoprite Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Discovery Holdings and Shoprite Holdings

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

The idea behind Discovery Holdings and Shoprite 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.