Correlation Between Mr Price and Woolworths Holdings

Can any of the company-specific risk be diversified away by investing in both Mr Price and Woolworths Holdings 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 Woolworths Holdings 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 Woolworths Holdings, you can compare the effects of market volatilities on Mr Price and Woolworths Holdings 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 Woolworths Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mr Price and Woolworths Holdings.

Diversification Opportunities for Mr Price and Woolworths Holdings

-0.31

Correlation Coefficient

Mr Price  Woolworths Holdings

Very good diversification

The 3 months correlation between MRP and Woolworths is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Mr Price Group and Woolworths Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings 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 Woolworths Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Holdings has no effect on the direction of Mr Price i.e., Mr Price and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Mr Price and Woolworths Holdings

Assuming the 90 days trading horizon Mr Price Group is expected to generate 0.95 times more return on investment than Woolworths Holdings. However, Mr Price Group is 1.06 times less risky than Woolworths Holdings. It trades about 0.21 of its potential returns per unit of risk. Woolworths Holdings is currently generating about 0.03 per unit of risk. If you would invest  1,639,250  in Mr Price Group on September 24, 2024 and sell it today you would earn a total of  1,338,150  from holding Mr Price Group or generate 81.63% return on investment over 90 days.

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

Mr Price Group  vs.  Woolworths Holdings

Mr Price Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mr Price Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Mr Price exhibited solid returns over the last few months and may actually be approaching a breakup point.

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mr Price and Woolworths Holdings

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

The idea behind Mr Price Group and Woolworths Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.