Correlation Between Grindrod and Dominos Pizza

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

By analyzing existing cross correlation between Grindrod Ltd ADR and Dominos Pizza, you can compare the effects of market volatilities on Grindrod and Dominos Pizza 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 Grindrod with a short position of Dominos Pizza. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grindrod and Dominos Pizza.

Diversification Opportunities for Grindrod and Dominos Pizza

0.56

Correlation Coefficient

Grindrod  Dominos Pizza

Very weak diversification

The 3 months correlation between Grindrod and Dominos is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Grindrod Ltd ADR and Dominos Pizza in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza and Grindrod 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 Grindrod Ltd ADR are associated (or correlated) with Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza has no effect on the direction of Grindrod i.e., Grindrod and Dominos Pizza go up and down completely randomly.

Pair Corralation between Grindrod and Dominos Pizza

Assuming the 90 days horizon Grindrod is expected to generate 20.83 times less return on investment than Dominos Pizza. But when comparing it to its historical volatility, Grindrod Ltd ADR is 17.22 times less risky than Dominos Pizza. It trades about 0.13 of its potential returns per unit of risk. Dominos Pizza is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  40,402  in Dominos Pizza on September 4, 2024 and sell it today you would earn a total of  6,216  from holding Dominos Pizza or generate 15.39% return on investment over 90 days.

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

Grindrod Ltd ADR  vs.  Dominos Pizza

Grindrod ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grindrod Ltd ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Grindrod is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Dominos Pizza

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Dominos Pizza showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grindrod and Dominos Pizza

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

The idea behind Grindrod Ltd ADR and Dominos Pizza 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.