Correlation Between NIGERIAN BREWERIES and ABC TRANSPORT

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

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

Diversification Opportunities for NIGERIAN BREWERIES and ABC TRANSPORT

0.09

Correlation Coefficient

NIGERIAN BREWERIES  ABC TRANSPORT

Significant diversification

The 3 months correlation between NIGERIAN and ABC is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding NIGERIAN BREWERIES PLC and ABC TRANSPORT PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC TRANSPORT PLC and NIGERIAN BREWERIES 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 NIGERIAN BREWERIES PLC are associated (or correlated) with ABC TRANSPORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC TRANSPORT PLC has no effect on the direction of NIGERIAN BREWERIES i.e., NIGERIAN BREWERIES and ABC TRANSPORT go up and down completely randomly.

Pair Corralation between NIGERIAN BREWERIES and ABC TRANSPORT

Assuming the 90 days trading horizon NIGERIAN BREWERIES is expected to generate 5.6 times less return on investment than ABC TRANSPORT. But when comparing it to its historical volatility, NIGERIAN BREWERIES PLC is 1.36 times less risky than ABC TRANSPORT. It trades about 0.03 of its potential returns per unit of risk. ABC TRANSPORT PLC is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  123.00  in ABC TRANSPORT PLC on December 25, 2024 and sell it today you would earn a total of  30.00  from holding ABC TRANSPORT PLC or generate 24.39% return on investment over 90 days.

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

NIGERIAN BREWERIES PLC  vs.  ABC TRANSPORT PLC

NIGERIAN BREWERIES PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NIGERIAN BREWERIES PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NIGERIAN BREWERIES is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

ABC TRANSPORT PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABC TRANSPORT PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, ABC TRANSPORT displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NIGERIAN BREWERIES and ABC TRANSPORT

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

The idea behind NIGERIAN BREWERIES PLC and ABC TRANSPORT PLC 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..