Correlation Between Gemfields and Shoprite Holdings

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

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

Diversification Opportunities for Gemfields and Shoprite Holdings

-0.55

Correlation Coefficient

Gemfields  Shoprite Holdings

Excellent diversification

The 3 months correlation between Gemfields and Shoprite is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Gemfields Group and Shoprite Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Gemfields 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 Gemfields Group are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Gemfields i.e., Gemfields and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Gemfields and Shoprite Holdings

Assuming the 90 days trading horizon Gemfields Group is expected to under-perform the Shoprite Holdings. In addition to that, Gemfields is 5.27 times more volatile than Shoprite Holdings. It trades about -0.15 of its total potential returns per unit of risk. Shoprite Holdings is currently generating about 0.05 per unit of volatility. If you would invest  2,988,500  in Shoprite Holdings on September 24, 2024 and sell it today you would earn a total of  34,700  from holding Shoprite Holdings or generate 1.16% return on investment over 90 days.

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

Gemfields Group  vs.  Shoprite Holdings

Gemfields Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gemfields Group 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 January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Shoprite Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gemfields and Shoprite Holdings

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

The idea behind Gemfields Group and Shoprite Holdings 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.