Correlation Between SHOPRITE HDGS and Shoprite Holdings

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

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

Diversification Opportunities for SHOPRITE HDGS and Shoprite Holdings

0.8

Correlation Coefficient

SHOPRITE HDGS  Shoprite Holdings

Very poor diversification

The 3 months correlation between SHOPRITE and Shoprite is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SHOPRITE HDGS ADR and Shoprite Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and SHOPRITE HDGS 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 HDGS ADR are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of SHOPRITE HDGS i.e., SHOPRITE HDGS and Shoprite Holdings go up and down completely randomly.

Pair Corralation between SHOPRITE HDGS and Shoprite Holdings

Assuming the 90 days trading horizon SHOPRITE HDGS ADR is expected to generate 1.01 times more return on investment than Shoprite Holdings. However, SHOPRITE HDGS is 1.01 times more volatile than Shoprite Holdings Limited. It trades about -0.01 of its potential returns per unit of risk. Shoprite Holdings Limited is currently generating about -0.15 per unit of risk. If you would invest  1,520  in SHOPRITE HDGS ADR on October 10, 2024 and sell it today you would lose (10.00) from holding SHOPRITE HDGS ADR or give up 0.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	94.44%
Values	Daily Returns

SHOPRITE HDGS ADR  vs.  Shoprite Holdings Limited

SHOPRITE HDGS ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SHOPRITE HDGS ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SHOPRITE HDGS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Shoprite Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shoprite Holdings Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Shoprite Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SHOPRITE HDGS and Shoprite Holdings

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

The idea behind SHOPRITE HDGS ADR and Shoprite Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.