Correlation Between Solution Financial and African Discovery

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

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

Diversification Opportunities for Solution Financial and African Discovery

-0.09

Correlation Coefficient

Solution Financial  African Discovery

Good diversification

The 3 months correlation between Solution and African is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Solution Financial and African Discovery Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Discovery and Solution Financial 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 Solution Financial are associated (or correlated) with African Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Discovery has no effect on the direction of Solution Financial i.e., Solution Financial and African Discovery go up and down completely randomly.

Pair Corralation between Solution Financial and African Discovery

Assuming the 90 days horizon Solution Financial is expected to generate 26.14 times less return on investment than African Discovery. But when comparing it to its historical volatility, Solution Financial is 3.84 times less risky than African Discovery. It trades about 0.01 of its potential returns per unit of risk. African Discovery Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.70  in African Discovery Group on December 30, 2024 and sell it today you would earn a total of  0.20  from holding African Discovery Group or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Solution Financial  vs.  African Discovery Group

Solution Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Solution Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Solution Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

African Discovery

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in African Discovery Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, African Discovery reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solution Financial and African Discovery

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

The idea behind Solution Financial and African Discovery 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.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.