Correlation Between Industrial and FirstRand

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

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

Diversification Opportunities for Industrial and FirstRand

-0.53

Correlation Coefficient

Industrial  FirstRand

Excellent diversification

The 3 months correlation between Industrial and FirstRand is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Industrial and Commercial and FirstRand Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstRand ADR and Industrial 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 Industrial and Commercial are associated (or correlated) with FirstRand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstRand ADR has no effect on the direction of Industrial i.e., Industrial and FirstRand go up and down completely randomly.

Pair Corralation between Industrial and FirstRand

Assuming the 90 days horizon Industrial and Commercial is expected to generate 1.46 times more return on investment than FirstRand. However, Industrial is 1.46 times more volatile than FirstRand Ltd ADR. It trades about 0.08 of its potential returns per unit of risk. FirstRand Ltd ADR is currently generating about -0.09 per unit of risk. If you would invest  60.00  in Industrial and Commercial on October 22, 2024 and sell it today you would earn a total of  7.00  from holding Industrial and Commercial or generate 11.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Industrial and Commercial  vs.  FirstRand Ltd ADR

Industrial and Commercial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial and Commercial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Industrial reported solid returns over the last few months and may actually be approaching a breakup point.

FirstRand ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FirstRand Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Industrial and FirstRand

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

The idea behind Industrial and Commercial and FirstRand Ltd ADR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.