Correlation Between HomeToGo and Merafe Resources

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

By analyzing existing cross correlation between HomeToGo SE and Merafe Resources Limited, you can compare the effects of market volatilities on HomeToGo and Merafe Resources 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 HomeToGo with a short position of Merafe Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of HomeToGo and Merafe Resources.

Diversification Opportunities for HomeToGo and Merafe Resources

0.49

Correlation Coefficient

HomeToGo  Merafe Resources

Very weak diversification

The 3 months correlation between HomeToGo and Merafe is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding HomeToGo SE and Merafe Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merafe Resources and HomeToGo 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 HomeToGo SE are associated (or correlated) with Merafe Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merafe Resources has no effect on the direction of HomeToGo i.e., HomeToGo and Merafe Resources go up and down completely randomly.

Pair Corralation between HomeToGo and Merafe Resources

Assuming the 90 days trading horizon HomeToGo SE is expected to generate 0.39 times more return on investment than Merafe Resources. However, HomeToGo SE is 2.56 times less risky than Merafe Resources. It trades about -0.03 of its potential returns per unit of risk. Merafe Resources Limited is currently generating about -0.03 per unit of risk. If you would invest  195.00  in HomeToGo SE on December 29, 2024 and sell it today you would lose (13.00) from holding HomeToGo SE or give up 6.67% of portfolio value over 90 days.

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

HomeToGo SE  vs.  Merafe Resources Limited

HomeToGo SE

Risk-Adjusted Performance

Very Weak

Over the last 90 days HomeToGo SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, HomeToGo is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Merafe Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merafe Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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 HomeToGo and Merafe Resources

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

The idea behind HomeToGo SE and Merafe Resources Limited 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.