Correlation Between East Africa and Davis Commodities

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

By analyzing existing cross correlation between East Africa Metals and Davis Commodities Limited, you can compare the effects of market volatilities on East Africa and Davis Commodities 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 East Africa with a short position of Davis Commodities. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Africa and Davis Commodities.

Diversification Opportunities for East Africa and Davis Commodities

0.0

Correlation Coefficient

East Africa  Davis Commodities

Pay attention - limited upside

The 3 months correlation between East and Davis is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Davis Commodities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Commodities and East Africa 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 East Africa Metals are associated (or correlated) with Davis Commodities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Commodities has no effect on the direction of East Africa i.e., East Africa and Davis Commodities go up and down completely randomly.

Pair Corralation between East Africa and Davis Commodities

Assuming the 90 days horizon East Africa Metals is expected to generate 8.59 times more return on investment than Davis Commodities. However, East Africa is 8.59 times more volatile than Davis Commodities Limited. It trades about 0.09 of its potential returns per unit of risk. Davis Commodities Limited is currently generating about -0.01 per unit of risk. If you would invest  9.15  in East Africa Metals on October 11, 2024 and sell it today you would earn a total of  1.85  from holding East Africa Metals or generate 20.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	66.27%
Values	Daily Returns

East Africa Metals  vs.  Davis Commodities Limited

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, East Africa is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Davis Commodities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Commodities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with East Africa and Davis Commodities

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

The idea behind East Africa Metals and Davis Commodities 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.