Correlation Between Compagnie and SHOPRITE HDGS

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

By analyzing existing cross correlation between Compagnie de Saint Gobain and SHOPRITE HDGS ADR, you can compare the effects of market volatilities on Compagnie and SHOPRITE HDGS 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 Compagnie with a short position of SHOPRITE HDGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compagnie and SHOPRITE HDGS.

Diversification Opportunities for Compagnie and SHOPRITE HDGS

-0.72

Correlation Coefficient

Compagnie  SHOPRITE HDGS

Pay attention - limited upside

The 3 months correlation between Compagnie and SHOPRITE is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Compagnie de Saint Gobain and SHOPRITE HDGS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHOPRITE HDGS ADR and Compagnie 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 Compagnie de Saint Gobain are associated (or correlated) with SHOPRITE HDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHOPRITE HDGS ADR has no effect on the direction of Compagnie i.e., Compagnie and SHOPRITE HDGS go up and down completely randomly.

Pair Corralation between Compagnie and SHOPRITE HDGS

Assuming the 90 days horizon Compagnie de Saint Gobain is expected to generate 1.23 times more return on investment than SHOPRITE HDGS. However, Compagnie is 1.23 times more volatile than SHOPRITE HDGS ADR. It trades about 0.11 of its potential returns per unit of risk. SHOPRITE HDGS ADR is currently generating about -0.09 per unit of risk. If you would invest  8,600  in Compagnie de Saint Gobain on December 29, 2024 and sell it today you would earn a total of  1,254  from holding Compagnie de Saint Gobain or generate 14.58% return on investment over 90 days.

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

Compagnie de Saint Gobain  vs.  SHOPRITE HDGS ADR

Compagnie de Saint

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compagnie de Saint Gobain are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Compagnie reported solid returns over the last few months and may actually be approaching a breakup point.

SHOPRITE HDGS ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days SHOPRITE HDGS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Compagnie and SHOPRITE HDGS

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

The idea behind Compagnie de Saint Gobain and SHOPRITE HDGS ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.