Correlation Between Emeco Holdings and African Discovery

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

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

Diversification Opportunities for Emeco Holdings and African Discovery

0.15

Correlation Coefficient

Emeco Holdings  African Discovery

Average diversification

The 3 months correlation between Emeco and African is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Emeco Holdings Limited and African Discovery Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Discovery and Emeco 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 Emeco Holdings Limited are associated (or correlated) with African Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Discovery has no effect on the direction of Emeco Holdings i.e., Emeco Holdings and African Discovery go up and down completely randomly.

Pair Corralation between Emeco Holdings and African Discovery

Assuming the 90 days horizon Emeco Holdings is expected to generate 6.08 times less return on investment than African Discovery. But when comparing it to its historical volatility, Emeco Holdings Limited is 9.25 times less risky than African Discovery. It trades about 0.13 of its potential returns per unit of risk. African Discovery Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.70  in African Discovery Group on December 29, 2024 and sell it today you would earn a total of  0.20  from holding African Discovery Group or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Emeco Holdings Limited  vs.  African Discovery Group

Emeco Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Emeco Holdings Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Emeco Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

African Discovery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in African Discovery Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, African Discovery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Emeco Holdings and African Discovery

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

The idea behind Emeco Holdings Limited and African Discovery 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.