Correlation Between Pan African and Shoprite Holdings

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

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

Diversification Opportunities for Pan African and Shoprite Holdings

-0.42

Correlation Coefficient

Pan African  Shoprite Holdings

Very good diversification

The 3 months correlation between Pan and Shoprite is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Pan African Resources and Shoprite Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Pan African 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 Pan African Resources 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 Pan African i.e., Pan African and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Pan African and Shoprite Holdings

Assuming the 90 days trading horizon Pan African Resources is expected to generate 2.71 times more return on investment than Shoprite Holdings. However, Pan African is 2.71 times more volatile than Shoprite Holdings. It trades about 0.14 of its potential returns per unit of risk. Shoprite Holdings is currently generating about -0.12 per unit of risk. If you would invest  80,000  in Pan African Resources on December 27, 2024 and sell it today you would earn a total of  20,300  from holding Pan African Resources or generate 25.37% return on investment over 90 days.

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

Pan African Resources  vs.  Shoprite Holdings

Pan African Resources

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pan African Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Pan African exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shoprite Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shoprite Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain 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.

Pair Trading with Pan African and Shoprite Holdings

The main advantage of trading using opposite Pan African and Shoprite Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pan African 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 Pan African Resources 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.