Correlation Between NYSE Composite and Shoprite Holdings

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

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

Diversification Opportunities for NYSE Composite and Shoprite Holdings

-0.55

Correlation Coefficient

NYSE Composite  Shoprite Holdings

Excellent diversification

The 3 months correlation between NYSE and Shoprite is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Shoprite Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Shoprite Holdings go up and down completely randomly.

Pair Corralation between NYSE Composite and Shoprite Holdings

Assuming the 90 days trading horizon NYSE Composite is expected to generate 3.68 times less return on investment than Shoprite Holdings. But when comparing it to its historical volatility, NYSE Composite is 4.47 times less risky than Shoprite Holdings. It trades about 0.06 of its potential returns per unit of risk. Shoprite Holdings Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,266  in Shoprite Holdings Limited on October 12, 2024 and sell it today you would earn a total of  367.00  from holding Shoprite Holdings Limited or generate 28.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	48.48%
Values	Daily Returns

NYSE Composite  vs.  Shoprite Holdings Limited

Pair Trading with NYSE Composite and Shoprite Holdings

The main advantage of trading using opposite NYSE Composite and Shoprite Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite and Shoprite Holdings Limited 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.