Correlation Between Shoprite Holdings and Relx PLC

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

By analyzing existing cross correlation between Shoprite Holdings Limited and Relx PLC ADR, you can compare the effects of market volatilities on Shoprite Holdings and Relx PLC 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 Relx PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shoprite Holdings and Relx PLC.

Diversification Opportunities for Shoprite Holdings and Relx PLC

-0.44

Correlation Coefficient

Shoprite Holdings  Relx PLC

Very good diversification

The 3 months correlation between Shoprite and Relx is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Shoprite Holdings Limited and Relx PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relx PLC ADR 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 Limited are associated (or correlated) with Relx PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relx PLC ADR has no effect on the direction of Shoprite Holdings i.e., Shoprite Holdings and Relx PLC go up and down completely randomly.

Pair Corralation between Shoprite Holdings and Relx PLC

Assuming the 90 days horizon Shoprite Holdings Limited is expected to generate 3.05 times more return on investment than Relx PLC. However, Shoprite Holdings is 3.05 times more volatile than Relx PLC ADR. It trades about 0.05 of its potential returns per unit of risk. Relx PLC ADR is currently generating about 0.1 per unit of risk. If you would invest  1,266  in Shoprite Holdings Limited on October 12, 2024 and sell it today you would earn a total of  367.00  from holding Shoprite Holdings Limited or generate 28.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	48.48%
Values	Daily Returns

Shoprite Holdings Limited  vs.  Relx PLC ADR

Shoprite Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Relx PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Relx PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Relx PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shoprite Holdings and Relx PLC

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

The idea behind Shoprite Holdings Limited and Relx PLC ADR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.