Correlation Between Globe Trade and Comp SA

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

By analyzing existing cross correlation between Globe Trade Centre and Comp SA, you can compare the effects of market volatilities on Globe Trade and Comp SA 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 Globe Trade with a short position of Comp SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globe Trade and Comp SA.

Diversification Opportunities for Globe Trade and Comp SA

0.5

Correlation Coefficient

Globe Trade  Comp SA

Very weak diversification

The 3 months correlation between Globe and Comp is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Globe Trade Centre and Comp SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Comp SA and Globe Trade 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 Globe Trade Centre are associated (or correlated) with Comp SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Comp SA has no effect on the direction of Globe Trade i.e., Globe Trade and Comp SA go up and down completely randomly.

Pair Corralation between Globe Trade and Comp SA

Assuming the 90 days trading horizon Globe Trade Centre is expected to under-perform the Comp SA. But the stock apears to be less risky and, when comparing its historical volatility, Globe Trade Centre is 1.04 times less risky than Comp SA. The stock trades about -0.02 of its potential returns per unit of risk. The Comp SA is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  13,800  in Comp SA on December 29, 2024 and sell it today you would earn a total of  5,550  from holding Comp SA or generate 40.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Globe Trade Centre  vs.  Comp SA

Globe Trade Centre

Risk-Adjusted Performance

Very Weak

Over the last 90 days Globe Trade Centre has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Globe Trade is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Comp SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Comp SA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Comp SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Globe Trade and Comp SA

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

The idea behind Globe Trade Centre and Comp SA 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.