Correlation Between Standard Bank and Shoprite Holdings

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

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

Diversification Opportunities for Standard Bank and Shoprite Holdings

0.4

Correlation Coefficient

Standard Bank  Shoprite Holdings

Very weak diversification

The 3 months correlation between Standard and Shoprite is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and Shoprite Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Standard Bank 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 Standard Bank Group 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 Standard Bank i.e., Standard Bank and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Standard Bank and Shoprite Holdings

Assuming the 90 days horizon Standard Bank Group is expected to under-perform the Shoprite Holdings. But the pink sheet apears to be less risky and, when comparing its historical volatility, Standard Bank Group is 1.42 times less risky than Shoprite Holdings. The pink sheet trades about -0.29 of its potential returns per unit of risk. The Shoprite Holdings Ltd is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  1,770  in Shoprite Holdings Ltd on October 7, 2024 and sell it today you would lose (208.00) from holding Shoprite Holdings Ltd or give up 11.75% of portfolio value over 90 days.

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

Standard Bank Group  vs.  Shoprite Holdings Ltd

Standard Bank Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Bank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Shoprite Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shoprite Holdings Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, Shoprite Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Standard Bank and Shoprite Holdings

The main advantage of trading using opposite Standard Bank and Shoprite Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Bank 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 Standard Bank Group and Shoprite Holdings Ltd 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.