Correlation Between Investec PLC and HomeChoice Investments

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

By analyzing existing cross correlation between Investec PLC and HomeChoice Investments, you can compare the effects of market volatilities on Investec PLC and HomeChoice Investments 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 Investec PLC with a short position of HomeChoice Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Investec PLC and HomeChoice Investments.

Diversification Opportunities for Investec PLC and HomeChoice Investments

0.14

Correlation Coefficient

Investec PLC  HomeChoice Investments

Average diversification

The 3 months correlation between Investec and HomeChoice is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Investec PLC and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments and Investec PLC 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 Investec PLC are associated (or correlated) with HomeChoice Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeChoice Investments has no effect on the direction of Investec PLC i.e., Investec PLC and HomeChoice Investments go up and down completely randomly.

Pair Corralation between Investec PLC and HomeChoice Investments

Assuming the 90 days trading horizon Investec PLC is expected to under-perform the HomeChoice Investments. But the stock apears to be less risky and, when comparing its historical volatility, Investec PLC is 2.11 times less risky than HomeChoice Investments. The stock trades about -0.09 of its potential returns per unit of risk. The HomeChoice Investments is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  300,000  in HomeChoice Investments on December 25, 2024 and sell it today you would lose (100.00) from holding HomeChoice Investments or give up 0.03% of portfolio value over 90 days.

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

Investec PLC  vs.  HomeChoice Investments

Investec PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Investec PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

HomeChoice Investments

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HomeChoice Investments are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, HomeChoice Investments is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Investec PLC and HomeChoice Investments

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

The idea behind Investec PLC and HomeChoice Investments 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .