Correlation Between Firstrand and S A P

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

By analyzing existing cross correlation between Firstrand and Sappi, you can compare the effects of market volatilities on Firstrand and S A P 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 S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Firstrand and S A P.

Diversification Opportunities for Firstrand and S A P

-0.4

Correlation Coefficient

Firstrand  S A P

Very good diversification

The 3 months correlation between Firstrand and SAP is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand and Sappi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sappi 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 S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sappi has no effect on the direction of Firstrand i.e., Firstrand and S A P go up and down completely randomly.

Pair Corralation between Firstrand and S A P

Assuming the 90 days trading horizon Firstrand is expected to generate 1.21 times more return on investment than S A P. However, Firstrand is 1.21 times more volatile than Sappi. It trades about -0.02 of its potential returns per unit of risk. Sappi is currently generating about -0.14 per unit of risk. If you would invest  776,500  in Firstrand on September 24, 2024 and sell it today you would lose (5,600) from holding Firstrand or give up 0.72% of portfolio value over 90 days.

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

Firstrand  vs.  Sappi

Firstrand

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Sappi

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sappi are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, S A P is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Firstrand and S A P

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

The idea behind Firstrand and Sappi 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.