Correlation Between Datatec and MTN

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

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

Diversification Opportunities for Datatec and MTN

0.64

Correlation Coefficient

Datatec  MTN

Poor diversification

The 3 months correlation between Datatec and MTN is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Datatec and MTN Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTN Group and Datatec 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 Datatec are associated (or correlated) with MTN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTN Group has no effect on the direction of Datatec i.e., Datatec and MTN go up and down completely randomly.

Pair Corralation between Datatec and MTN

Assuming the 90 days trading horizon Datatec is expected to generate 2.33 times less return on investment than MTN. But when comparing it to its historical volatility, Datatec is 1.28 times less risky than MTN. It trades about 0.13 of its potential returns per unit of risk. MTN Group is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  928,900  in MTN Group on December 27, 2024 and sell it today you would earn a total of  336,800  from holding MTN Group or generate 36.26% return on investment over 90 days.

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

Datatec  vs.  MTN Group

Datatec

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Datatec are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Datatec exhibited solid returns over the last few months and may actually be approaching a breakup point.

MTN Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MTN Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, MTN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Datatec and MTN

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

The idea behind Datatec and MTN Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.