Correlation Between Sasol and Woolworths Holdings

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

Diversification Opportunities for Sasol and Woolworths Holdings

0.05

Correlation Coefficient

Sasol  Woolworths Holdings

Significant diversification

The 3 months correlation between Sasol and Woolworths is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Sasol Ltd Bee and Woolworths Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings 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 Woolworths Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Holdings has no effect on the direction of Sasol i.e., Sasol and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Sasol and Woolworths Holdings

Assuming the 90 days trading horizon Sasol Ltd Bee is expected to under-perform the Woolworths Holdings. In addition to that, Sasol is 1.14 times more volatile than Woolworths Holdings. It trades about -0.18 of its total potential returns per unit of risk. Woolworths Holdings is currently generating about 0.05 per unit of volatility. If you would invest  618,676  in Woolworths Holdings on September 15, 2024 and sell it today you would earn a total of  29,224  from holding Woolworths Holdings or generate 4.72% return on investment over 90 days.

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

Sasol Ltd Bee  vs.  Woolworths Holdings

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 weak performance in the last few months, the Etf's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Woolworths Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Woolworths Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Woolworths Holdings 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 Woolworths Holdings

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

The idea behind Sasol Ltd Bee and Woolworths Holdings 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.