Correlation Between Pepkor Holdings and Woolworths Holdings

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

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

Diversification Opportunities for Pepkor Holdings and Woolworths Holdings

-0.55

Correlation Coefficient

Pepkor Holdings  Woolworths Holdings

Excellent diversification

The 3 months correlation between Pepkor and Woolworths is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Pepkor Holdings and Woolworths Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings and Pepkor Holdings 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 Pepkor Holdings are associated (or correlated) with Woolworths Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Holdings has no effect on the direction of Pepkor Holdings i.e., Pepkor Holdings and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Pepkor Holdings and Woolworths Holdings

Assuming the 90 days trading horizon Pepkor Holdings is expected to generate 0.86 times more return on investment than Woolworths Holdings. However, Pepkor Holdings is 1.16 times less risky than Woolworths Holdings. It trades about 0.2 of its potential returns per unit of risk. Woolworths Holdings is currently generating about 0.03 per unit of risk. If you would invest  176,500  in Pepkor Holdings on September 24, 2024 and sell it today you would earn a total of  121,300  from holding Pepkor Holdings or generate 68.73% return on investment over 90 days.

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

Pepkor Holdings  vs.  Woolworths Holdings

Pepkor Holdings

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pepkor Holdings are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Pepkor Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Pepkor Holdings and Woolworths Holdings

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

The idea behind Pepkor Holdings and Woolworths 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.