Correlation Between Life Healthcare and Sasol

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

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

Diversification Opportunities for Life Healthcare and Sasol

-0.15

Correlation Coefficient

Life Healthcare  Sasol

Good diversification

The 3 months correlation between Life and Sasol is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and Sasol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol and Life Healthcare 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 Life Healthcare 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 has no effect on the direction of Life Healthcare i.e., Life Healthcare and Sasol go up and down completely randomly.

Pair Corralation between Life Healthcare and Sasol

Assuming the 90 days trading horizon Life Healthcare is expected to generate 0.91 times more return on investment than Sasol. However, Life Healthcare is 1.1 times less risky than Sasol. It trades about 0.01 of its potential returns per unit of risk. Sasol is currently generating about -0.08 per unit of risk. If you would invest  169,857  in Life Healthcare on October 26, 2024 and sell it today you would lose (10,557) from holding Life Healthcare or give up 6.22% of portfolio value over 90 days.

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

Life Healthcare  vs.  Sasol

Life Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Life Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sasol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sasol 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.

Pair Trading with Life Healthcare and Sasol

The main advantage of trading using opposite Life Healthcare and Sasol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Life Healthcare 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 Life Healthcare and Sasol 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.