Correlation Between Mr Price and S A P

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

By analyzing existing cross correlation between Mr Price Group and Sappi, you can compare the effects of market volatilities on Mr Price and S A P 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 Mr Price with a short position of S A P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mr Price and S A P.

Diversification Opportunities for Mr Price and S A P

0.81

Correlation Coefficient

Mr Price  S A P

Very poor diversification

The 3 months correlation between MRP and SAP is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Mr Price Group and Sappi in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sappi and Mr Price 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 Mr Price Group are associated (or correlated) with S A P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sappi has no effect on the direction of Mr Price i.e., Mr Price and S A P go up and down completely randomly.

Pair Corralation between Mr Price and S A P

Assuming the 90 days trading horizon Mr Price Group is expected to under-perform the S A P. But the stock apears to be less risky and, when comparing its historical volatility, Mr Price Group is 1.13 times less risky than S A P. The stock trades about -0.21 of its potential returns per unit of risk. The Sappi is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  489,000  in Sappi on December 25, 2024 and sell it today you would lose (80,800) from holding Sappi or give up 16.52% of portfolio value over 90 days.

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

Mr Price Group  vs.  Sappi

Mr Price Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mr Price Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sappi

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sappi has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Mr Price and S A P

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

The idea behind Mr Price Group and Sappi 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.