Correlation Between Sasol and Firstrand

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

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

Diversification Opportunities for Sasol and Firstrand

0.52

Correlation Coefficient

Sasol  Firstrand

Very weak diversification

The 3 months correlation between Sasol and Firstrand is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sasol Ltd Bee and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand and Sasol 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 Sasol Ltd Bee are associated (or correlated) with Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of Sasol i.e., Sasol and Firstrand go up and down completely randomly.

Pair Corralation between Sasol and Firstrand

Assuming the 90 days trading horizon Sasol Ltd Bee is expected to generate 9.8 times more return on investment than Firstrand. However, Sasol is 9.8 times more volatile than Firstrand. It trades about 0.0 of its potential returns per unit of risk. Firstrand is currently generating about -0.13 per unit of risk. If you would invest  800,000  in Sasol Ltd Bee on December 2, 2024 and sell it today you would lose (290,000) from holding Sasol Ltd Bee or give up 36.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Sasol Ltd Bee  vs.  Firstrand

Sasol Ltd Bee

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sasol Ltd Bee has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Sasol is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Firstrand

Risk-Adjusted Performance

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Sasol and Firstrand

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

The idea behind Sasol Ltd Bee and Firstrand 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.