Correlation Between Shoprite Holdings and Parkson Retail

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

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

Diversification Opportunities for Shoprite Holdings and Parkson Retail

-0.19

Correlation Coefficient

Shoprite Holdings  Parkson Retail

Good diversification

The 3 months correlation between Shoprite and Parkson is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Shoprite Holdings Limited and Parkson Retail Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Parkson Retail Group and Shoprite Holdings 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 Shoprite Holdings Limited are associated (or correlated) with Parkson Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Parkson Retail Group has no effect on the direction of Shoprite Holdings i.e., Shoprite Holdings and Parkson Retail go up and down completely randomly.

Pair Corralation between Shoprite Holdings and Parkson Retail

Assuming the 90 days horizon Shoprite Holdings Limited is expected to under-perform the Parkson Retail. But the stock apears to be less risky and, when comparing its historical volatility, Shoprite Holdings Limited is 7.12 times less risky than Parkson Retail. The stock trades about -0.07 of its potential returns per unit of risk. The Parkson Retail Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  0.70  in Parkson Retail Group on November 28, 2024 and sell it today you would earn a total of  0.05  from holding Parkson Retail Group or generate 7.14% return on investment over 90 days.

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

Shoprite Holdings Limited  vs.  Parkson Retail Group

Shoprite Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shoprite Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Parkson Retail Group

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Parkson Retail Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Parkson Retail reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shoprite Holdings and Parkson Retail

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

The idea behind Shoprite Holdings Limited and Parkson Retail Group 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.