Correlation Between FIRST MUTUAL and STAR AFRICA

Can any of the company-specific risk be diversified away by investing in both FIRST MUTUAL and STAR AFRICA 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 STAR AFRICA 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 STAR AFRICA PORATION, you can compare the effects of market volatilities on FIRST MUTUAL and STAR AFRICA 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 STAR AFRICA. Check out your portfolio center. Please also check ongoing floating volatility patterns of FIRST MUTUAL and STAR AFRICA.

Diversification Opportunities for FIRST MUTUAL and STAR AFRICA

-0.18

Correlation Coefficient

FIRST MUTUAL  STAR AFRICA

Good diversification

The 3 months correlation between FIRST and STAR is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding FIRST MUTUAL PROPERTIES and STAR AFRICA PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STAR AFRICA PORATION 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 STAR AFRICA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STAR AFRICA PORATION has no effect on the direction of FIRST MUTUAL i.e., FIRST MUTUAL and STAR AFRICA go up and down completely randomly.

Pair Corralation between FIRST MUTUAL and STAR AFRICA

Assuming the 90 days trading horizon FIRST MUTUAL PROPERTIES is expected to generate 0.59 times more return on investment than STAR AFRICA. However, FIRST MUTUAL PROPERTIES is 1.7 times less risky than STAR AFRICA. It trades about 0.38 of its potential returns per unit of risk. STAR AFRICA PORATION is currently generating about -0.11 per unit of risk. If you would invest  9,500  in FIRST MUTUAL PROPERTIES on October 12, 2024 and sell it today you would earn a total of  2,795  from holding FIRST MUTUAL PROPERTIES or generate 29.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.74%
Values	Daily Returns

FIRST MUTUAL PROPERTIES  vs.  STAR AFRICA PORATION

FIRST MUTUAL PROPERTIES

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FIRST MUTUAL PROPERTIES are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent forward indicators, FIRST MUTUAL demonstrated solid returns over the last few months and may actually be approaching a breakup point.

STAR AFRICA PORATION

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in STAR AFRICA PORATION are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, STAR AFRICA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with FIRST MUTUAL and STAR AFRICA

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

The idea behind FIRST MUTUAL PROPERTIES and STAR AFRICA PORATION 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.