Correlation Between Sasol and Arrowhead Properties

Can any of the company-specific risk be diversified away by investing in both Sasol and Arrowhead Properties 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 Arrowhead Properties 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 Arrowhead Properties Ltd, you can compare the effects of market volatilities on Sasol and Arrowhead Properties 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 Arrowhead Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sasol and Arrowhead Properties.

Diversification Opportunities for Sasol and Arrowhead Properties

-0.63

Correlation Coefficient

Sasol  Arrowhead Properties

Excellent diversification

The 3 months correlation between Sasol and Arrowhead is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sasol Ltd Bee and Arrowhead Properties Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arrowhead Properties 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 Arrowhead Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arrowhead Properties has no effect on the direction of Sasol i.e., Sasol and Arrowhead Properties go up and down completely randomly.

Pair Corralation between Sasol and Arrowhead Properties

Assuming the 90 days trading horizon Sasol Ltd Bee is expected to generate 7.63 times more return on investment than Arrowhead Properties. However, Sasol is 7.63 times more volatile than Arrowhead Properties Ltd. It trades about 0.06 of its potential returns per unit of risk. Arrowhead Properties Ltd is currently generating about -0.01 per unit of risk. If you would invest  800,000  in Sasol Ltd Bee on October 22, 2024 and sell it today you would lose (90,000) from holding Sasol Ltd Bee or give up 11.25% of portfolio value over 90 days.

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

Sasol Ltd Bee  vs.  Arrowhead Properties Ltd

Sasol Ltd Bee

Risk-Adjusted Performance

0 of 100

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.

Arrowhead Properties

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arrowhead Properties Ltd are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Arrowhead Properties is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Sasol and Arrowhead Properties

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

The idea behind Sasol Ltd Bee and Arrowhead Properties 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.