Correlation Between Kap Industrial and Sasol

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

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

Diversification Opportunities for Kap Industrial and Sasol

-0.01

Correlation Coefficient

Kap Industrial  Sasol

Good diversification

The 3 months correlation between Kap and Sasol is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings and Sasol Ltd Bee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol Ltd Bee and Kap 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 Kap Industrial Holdings are associated (or correlated) with Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol Ltd Bee has no effect on the direction of Kap Industrial i.e., Kap Industrial and Sasol go up and down completely randomly.

Pair Corralation between Kap Industrial and Sasol

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to under-perform the Sasol. But the stock apears to be less risky and, when comparing its historical volatility, Kap Industrial Holdings is 2.6 times less risky than Sasol. The stock trades about -0.05 of its potential returns per unit of risk. The Sasol Ltd Bee is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  420,000  in Sasol Ltd Bee on December 30, 2024 and sell it today you would earn a total of  85,000  from holding Sasol Ltd Bee or generate 20.24% return on investment over 90 days.

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

Kap Industrial Holdings  vs.  Sasol Ltd Bee

Kap Industrial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kap Industrial Holdings 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.

Sasol Ltd Bee

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sasol Ltd Bee are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Sasol sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kap Industrial and Sasol

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

The idea behind Kap Industrial Holdings and Sasol Ltd Bee 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.