Correlation Between Firstrand and Dis Chem

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

By analyzing existing cross correlation between Firstrand and Dis Chem Pharmacies, you can compare the effects of market volatilities on Firstrand and Dis Chem 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 Firstrand with a short position of Dis Chem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Firstrand and Dis Chem.

Diversification Opportunities for Firstrand and Dis Chem

0.47

Correlation Coefficient

Firstrand  Dis Chem

Very weak diversification

The 3 months correlation between Firstrand and Dis is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand and Dis Chem Pharmacies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dis Chem Pharmacies and Firstrand 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 Firstrand are associated (or correlated) with Dis Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dis Chem Pharmacies has no effect on the direction of Firstrand i.e., Firstrand and Dis Chem go up and down completely randomly.

Pair Corralation between Firstrand and Dis Chem

Assuming the 90 days trading horizon Firstrand is expected to generate 1.12 times more return on investment than Dis Chem. However, Firstrand is 1.12 times more volatile than Dis Chem Pharmacies. It trades about 0.11 of its potential returns per unit of risk. Dis Chem Pharmacies is currently generating about -0.23 per unit of risk. If you would invest  707,100  in Firstrand on December 30, 2024 and sell it today you would earn a total of  22,500  from holding Firstrand or generate 3.18% return on investment over 90 days.

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

Firstrand  vs.  Dis Chem Pharmacies

Firstrand

Risk-Adjusted Performance

Very Weak

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

Dis Chem Pharmacies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dis Chem Pharmacies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Firstrand and Dis Chem

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

The idea behind Firstrand and Dis Chem Pharmacies 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.