Correlation Between S A P and Mr Price

Can any of the company-specific risk be diversified away by investing in both S A P and Mr Price 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 S A P and Mr Price into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sappi and Mr Price Group, you can compare the effects of market volatilities on S A P and Mr Price 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 S A P with a short position of Mr Price. Check out your portfolio center. Please also check ongoing floating volatility patterns of S A P and Mr Price.

Diversification Opportunities for S A P and Mr Price

-0.13

Correlation Coefficient

S A P  Mr Price

Good diversification

The 3 months correlation between SAP and MRP is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sappi and Mr Price Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mr Price Group and S A P 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 Sappi are associated (or correlated) with Mr Price. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mr Price Group has no effect on the direction of S A P i.e., S A P and Mr Price go up and down completely randomly.

Pair Corralation between S A P and Mr Price

Assuming the 90 days trading horizon Sappi is expected to generate 1.21 times more return on investment than Mr Price. However, S A P is 1.21 times more volatile than Mr Price Group. It trades about -0.08 of its potential returns per unit of risk. Mr Price Group is currently generating about -0.17 per unit of risk. If you would invest  507,500  in Sappi on October 13, 2024 and sell it today you would lose (16,600) from holding Sappi or give up 3.27% of portfolio value over 90 days.

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

Sappi  vs.  Mr Price Group

Sappi

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mr Price Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mr Price Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Mr Price may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with S A P and Mr Price

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

The idea behind Sappi and Mr Price Group 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.