Correlation Between Netcare and African Media

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

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

Diversification Opportunities for Netcare and African Media

-0.21

Correlation Coefficient

Netcare  African Media

Very good diversification

The 3 months correlation between Netcare and African is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Netcare and African Media Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Media Entert and Netcare 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 Netcare are associated (or correlated) with African Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Media Entert has no effect on the direction of Netcare i.e., Netcare and African Media go up and down completely randomly.

Pair Corralation between Netcare and African Media

Assuming the 90 days trading horizon Netcare is expected to under-perform the African Media. But the stock apears to be less risky and, when comparing its historical volatility, Netcare is 2.97 times less risky than African Media. The stock trades about -0.04 of its potential returns per unit of risk. The African Media Entertainment is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  388,196  in African Media Entertainment on October 12, 2024 and sell it today you would earn a total of  14,304  from holding African Media Entertainment or generate 3.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Netcare  vs.  African Media Entertainment

Netcare

Risk-Adjusted Performance

0 of 100

Very Weak

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

African Media Entert

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in African Media Entertainment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, African Media may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Netcare and African Media

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

The idea behind Netcare and African Media Entertainment 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.