Correlation Between PEPKOR and Lianhua Supermarket

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

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

Diversification Opportunities for PEPKOR and Lianhua Supermarket

0.29

Correlation Coefficient

PEPKOR  Lianhua Supermarket

Modest diversification

The 3 months correlation between PEPKOR and Lianhua is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding PEPKOR LTD and Lianhua Supermarket Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lianhua Supermarket and PEPKOR 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 LTD are associated (or correlated) with Lianhua Supermarket. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lianhua Supermarket has no effect on the direction of PEPKOR i.e., PEPKOR and Lianhua Supermarket go up and down completely randomly.

Pair Corralation between PEPKOR and Lianhua Supermarket

Assuming the 90 days trading horizon PEPKOR LTD is expected to generate 0.8 times more return on investment than Lianhua Supermarket. However, PEPKOR LTD is 1.25 times less risky than Lianhua Supermarket. It trades about 0.1 of its potential returns per unit of risk. Lianhua Supermarket Holdings is currently generating about 0.07 per unit of risk. If you would invest  92.00  in PEPKOR LTD on December 22, 2024 and sell it today you would earn a total of  36.00  from holding PEPKOR LTD or generate 39.13% return on investment over 90 days.

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

PEPKOR LTD  vs.  Lianhua Supermarket Holdings

PEPKOR LTD

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PEPKOR LTD are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, PEPKOR reported solid returns over the last few months and may actually be approaching a breakup point.

Lianhua Supermarket

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lianhua Supermarket Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Lianhua Supermarket reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PEPKOR and Lianhua Supermarket

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

The idea behind PEPKOR LTD and Lianhua Supermarket 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.