Correlation Between Discovery Holdings and Tsogo Sun

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

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

Diversification Opportunities for Discovery Holdings and Tsogo Sun

-0.8

Correlation Coefficient

Discovery Holdings  Tsogo Sun

Pay attention - limited upside

The 3 months correlation between Discovery and Tsogo is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Discovery Holdings and Tsogo Sun in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsogo Sun 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 Tsogo Sun. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsogo Sun has no effect on the direction of Discovery Holdings i.e., Discovery Holdings and Tsogo Sun go up and down completely randomly.

Pair Corralation between Discovery Holdings and Tsogo Sun

Assuming the 90 days trading horizon Discovery Holdings is expected to generate 0.38 times more return on investment than Tsogo Sun. However, Discovery Holdings is 2.64 times less risky than Tsogo Sun. It trades about 0.08 of its potential returns per unit of risk. Tsogo Sun is currently generating about -0.27 per unit of risk. If you would invest  1,948,500  in Discovery Holdings on September 25, 2024 and sell it today you would earn a total of  26,200  from holding Discovery Holdings or generate 1.34% return on investment over 90 days.

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

Discovery Holdings  vs.  Tsogo Sun

Discovery Holdings

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Discovery Holdings are ranked lower than 22 (%) 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.

Tsogo Sun

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tsogo Sun has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Discovery Holdings and Tsogo Sun

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

The idea behind Discovery Holdings and Tsogo Sun 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.