Correlation Between E Media and Vodacom Group

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

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

Diversification Opportunities for E Media and Vodacom Group

-0.25

Correlation Coefficient

E Media  Vodacom Group

Very good diversification

The 3 months correlation between EMH and Vodacom is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding E Media Holdings and Vodacom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodacom Group and E Media 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 E Media Holdings are associated (or correlated) with Vodacom Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodacom Group has no effect on the direction of E Media i.e., E Media and Vodacom Group go up and down completely randomly.

Pair Corralation between E Media and Vodacom Group

Assuming the 90 days trading horizon E Media is expected to generate 5.99 times less return on investment than Vodacom Group. In addition to that, E Media is 2.22 times more volatile than Vodacom Group. It trades about 0.01 of its total potential returns per unit of risk. Vodacom Group is currently generating about 0.16 per unit of volatility. If you would invest  1,007,900  in Vodacom Group on December 20, 2024 and sell it today you would earn a total of  155,300  from holding Vodacom Group or generate 15.41% return on investment over 90 days.

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

E Media Holdings  vs.  Vodacom Group

E Media Holdings

Risk-Adjusted Performance

Very Weak

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

Vodacom Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vodacom Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Vodacom Group exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with E Media and Vodacom Group

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

The idea behind E Media Holdings and Vodacom 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.