Correlation Between MTN and Shoprite Holdings

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

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

Diversification Opportunities for MTN and Shoprite Holdings

-0.31

Correlation Coefficient

MTN  Shoprite Holdings

Very good diversification

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

Pair Corralation between MTN and Shoprite Holdings

Assuming the 90 days trading horizon MTN Group is expected to under-perform the Shoprite Holdings. But the stock apears to be less risky and, when comparing its historical volatility, MTN Group is 1.03 times less risky than Shoprite Holdings. The stock trades about -0.14 of its potential returns per unit of risk. The Shoprite Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,979,966  in Shoprite Holdings on September 5, 2024 and sell it today you would earn a total of  97,734  from holding Shoprite Holdings or generate 3.28% return on investment over 90 days.

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

MTN Group  vs.  Shoprite Holdings

MTN Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MTN Group 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.

Shoprite Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shoprite Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Shoprite 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 MTN and Shoprite Holdings

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

The idea behind MTN Group and Shoprite 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.