Correlation Between Elia Group and Merafe Resources

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

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

Diversification Opportunities for Elia Group and Merafe Resources

0.03

Correlation Coefficient

Elia Group  Merafe Resources

Significant diversification

The 3 months correlation between Elia and Merafe is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Elia Group SANV and Merafe Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merafe Resources and Elia Group 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 Elia Group SANV are associated (or correlated) with Merafe Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merafe Resources has no effect on the direction of Elia Group i.e., Elia Group and Merafe Resources go up and down completely randomly.

Pair Corralation between Elia Group and Merafe Resources

Assuming the 90 days trading horizon Elia Group SANV is expected to under-perform the Merafe Resources. But the stock apears to be less risky and, when comparing its historical volatility, Elia Group SANV is 3.03 times less risky than Merafe Resources. The stock trades about -0.25 of its potential returns per unit of risk. The Merafe Resources Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7.70  in Merafe Resources Limited on September 15, 2024 and sell it today you would lose (0.20) from holding Merafe Resources Limited or give up 2.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

Elia Group SANV  vs.  Merafe Resources Limited

Elia Group SANV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elia Group SANV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's forward indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Merafe Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Merafe Resources Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Merafe Resources is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Elia Group and Merafe Resources

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

The idea behind Elia Group SANV and Merafe Resources 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.