Correlation Between Shoprite Holdings and Woolworths Holdings

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

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

Diversification Opportunities for Shoprite Holdings and Woolworths Holdings

0.22

Correlation Coefficient

Shoprite Holdings  Woolworths Holdings

Modest diversification

The 3 months correlation between Shoprite and Woolworths is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Shoprite Holdings Ltd and Woolworths Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings and Shoprite Holdings 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 Shoprite Holdings Ltd 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 Shoprite Holdings i.e., Shoprite Holdings and Woolworths Holdings go up and down completely randomly.

Pair Corralation between Shoprite Holdings and Woolworths Holdings

Assuming the 90 days horizon Shoprite Holdings Ltd is expected to generate 0.76 times more return on investment than Woolworths Holdings. However, Shoprite Holdings Ltd is 1.31 times less risky than Woolworths Holdings. It trades about -0.22 of its potential returns per unit of risk. Woolworths Holdings Ltd is currently generating about -0.18 per unit of risk. If you would invest  1,709  in Shoprite Holdings Ltd on October 10, 2024 and sell it today you would lose (147.00) from holding Shoprite Holdings Ltd or give up 8.6% of portfolio value over 90 days.

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

Shoprite Holdings Ltd  vs.  Woolworths Holdings Ltd

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.

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths Holdings Ltd 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 technical 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.

Pair Trading with Shoprite Holdings and Woolworths Holdings

The main advantage of trading using opposite Shoprite Holdings and Woolworths Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shoprite Holdings 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 Shoprite Holdings Ltd and Woolworths 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.