Correlation Between Foschini and HomeChoice Investments

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

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

Diversification Opportunities for Foschini and HomeChoice Investments

0.23

Correlation Coefficient

Foschini  HomeChoice Investments

Modest diversification

The 3 months correlation between Foschini and HomeChoice is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Foschini Group and HomeChoice Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeChoice Investments and Foschini 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 Foschini Group are associated (or correlated) with HomeChoice Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeChoice Investments has no effect on the direction of Foschini i.e., Foschini and HomeChoice Investments go up and down completely randomly.

Pair Corralation between Foschini and HomeChoice Investments

Assuming the 90 days trading horizon Foschini Group is expected to under-perform the HomeChoice Investments. But the stock apears to be less risky and, when comparing its historical volatility, Foschini Group is 1.7 times less risky than HomeChoice Investments. The stock trades about -0.25 of its potential returns per unit of risk. The HomeChoice Investments is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  280,000  in HomeChoice Investments on December 30, 2024 and sell it today you would earn a total of  19,900  from holding HomeChoice Investments or generate 7.11% return on investment over 90 days.

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

Foschini Group  vs.  HomeChoice Investments

Foschini Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Foschini Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

HomeChoice Investments

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in HomeChoice Investments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, HomeChoice Investments may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Foschini and HomeChoice Investments

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

The idea behind Foschini Group and HomeChoice Investments 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.