Correlation Between FIRST MUTUAL and AFRICAN DISTILLERS

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

By analyzing existing cross correlation between FIRST MUTUAL PROPERTIES and AFRICAN DISTILLERS LIMITED, you can compare the effects of market volatilities on FIRST MUTUAL and AFRICAN DISTILLERS 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 FIRST MUTUAL with a short position of AFRICAN DISTILLERS. Check out your portfolio center. Please also check ongoing floating volatility patterns of FIRST MUTUAL and AFRICAN DISTILLERS.

Diversification Opportunities for FIRST MUTUAL and AFRICAN DISTILLERS

0.8

Correlation Coefficient

FIRST MUTUAL  AFRICAN DISTILLERS

Very poor diversification

The 3 months correlation between FIRST and AFRICAN is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding FIRST MUTUAL PROPERTIES and AFRICAN DISTILLERS LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFRICAN DISTILLERS and FIRST MUTUAL 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 FIRST MUTUAL PROPERTIES are associated (or correlated) with AFRICAN DISTILLERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFRICAN DISTILLERS has no effect on the direction of FIRST MUTUAL i.e., FIRST MUTUAL and AFRICAN DISTILLERS go up and down completely randomly.

Pair Corralation between FIRST MUTUAL and AFRICAN DISTILLERS

Assuming the 90 days trading horizon FIRST MUTUAL PROPERTIES is expected to under-perform the AFRICAN DISTILLERS. In addition to that, FIRST MUTUAL is 2.71 times more volatile than AFRICAN DISTILLERS LIMITED. It trades about -0.2 of its total potential returns per unit of risk. AFRICAN DISTILLERS LIMITED is currently generating about -0.1 per unit of volatility. If you would invest  69,100  in AFRICAN DISTILLERS LIMITED on December 22, 2024 and sell it today you would lose (3,100) from holding AFRICAN DISTILLERS LIMITED or give up 4.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

FIRST MUTUAL PROPERTIES  vs.  AFRICAN DISTILLERS LIMITED

FIRST MUTUAL PROPERTIES

Risk-Adjusted Performance

Very Weak

Over the last 90 days FIRST MUTUAL PROPERTIES has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

AFRICAN DISTILLERS

Risk-Adjusted Performance

Very Weak

Over the last 90 days AFRICAN DISTILLERS LIMITED has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, AFRICAN DISTILLERS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FIRST MUTUAL and AFRICAN DISTILLERS

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

The idea behind FIRST MUTUAL PROPERTIES and AFRICAN DISTILLERS 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.