Correlation Between MTN and Vodacom

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

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

Diversification Opportunities for MTN and Vodacom

0.83

Correlation Coefficient

MTN  Vodacom

Very poor diversification

The 3 months correlation between MTN and Vodacom is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MTN Group and Vodacom Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodacom Group 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 Vodacom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodacom Group has no effect on the direction of MTN i.e., MTN and Vodacom go up and down completely randomly.

Pair Corralation between MTN and Vodacom

Assuming the 90 days trading horizon MTN Group is expected to under-perform the Vodacom. In addition to that, MTN is 1.22 times more volatile than Vodacom Group. It trades about 0.0 of its total potential returns per unit of risk. Vodacom Group is currently generating about 0.03 per unit of volatility. If you would invest  956,756  in Vodacom Group on September 14, 2024 and sell it today you would earn a total of  109,644  from holding Vodacom Group or generate 11.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.63%
Values	Daily Returns

MTN Group  vs.  Vodacom Group

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 rather sound technical and fundamental indicators, MTN is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Vodacom Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodacom Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Vodacom 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 Vodacom

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

The idea behind MTN Group and Vodacom Group 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.