Correlation Between Aeon and SHOPRITE HDGS

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

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

Diversification Opportunities for Aeon and SHOPRITE HDGS

-0.08

Correlation Coefficient

Aeon  SHOPRITE HDGS

Good diversification

The 3 months correlation between Aeon and SHOPRITE is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Aeon Co and SHOPRITE HDGS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHOPRITE HDGS ADR and Aeon 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 Aeon Co are associated (or correlated) with SHOPRITE HDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHOPRITE HDGS ADR has no effect on the direction of Aeon i.e., Aeon and SHOPRITE HDGS go up and down completely randomly.

Pair Corralation between Aeon and SHOPRITE HDGS

Assuming the 90 days trading horizon Aeon Co is expected to under-perform the SHOPRITE HDGS. But the stock apears to be less risky and, when comparing its historical volatility, Aeon Co is 1.65 times less risky than SHOPRITE HDGS. The stock trades about -0.04 of its potential returns per unit of risk. The SHOPRITE HDGS ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,410  in SHOPRITE HDGS ADR on September 23, 2024 and sell it today you would earn a total of  90.00  from holding SHOPRITE HDGS ADR or generate 6.38% return on investment over 90 days.

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

Aeon Co  vs.  SHOPRITE HDGS ADR

Aeon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aeon Co 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.

SHOPRITE HDGS ADR

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days SHOPRITE HDGS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Aeon and SHOPRITE HDGS

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

The idea behind Aeon Co and SHOPRITE HDGS 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.