Correlation Between TRANSCORP HOTELS and AIRTEL AFRICA

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

By analyzing existing cross correlation between TRANSCORP HOTELS PLC and AIRTEL AFRICA PLC, you can compare the effects of market volatilities on TRANSCORP HOTELS and AIRTEL AFRICA 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 TRANSCORP HOTELS with a short position of AIRTEL AFRICA. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRANSCORP HOTELS and AIRTEL AFRICA.

Diversification Opportunities for TRANSCORP HOTELS and AIRTEL AFRICA

-0.7

Correlation Coefficient

TRANSCORP HOTELS  AIRTEL AFRICA

Excellent diversification

The 3 months correlation between TRANSCORP and AIRTEL is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding TRANSCORP HOTELS PLC and AIRTEL AFRICA PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIRTEL AFRICA PLC and TRANSCORP HOTELS 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 TRANSCORP HOTELS PLC are associated (or correlated) with AIRTEL AFRICA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIRTEL AFRICA PLC has no effect on the direction of TRANSCORP HOTELS i.e., TRANSCORP HOTELS and AIRTEL AFRICA go up and down completely randomly.

Pair Corralation between TRANSCORP HOTELS and AIRTEL AFRICA

Assuming the 90 days trading horizon TRANSCORP HOTELS PLC is expected to generate 6.13 times more return on investment than AIRTEL AFRICA. However, TRANSCORP HOTELS is 6.13 times more volatile than AIRTEL AFRICA PLC. It trades about 0.18 of its potential returns per unit of risk. AIRTEL AFRICA PLC is currently generating about -0.13 per unit of risk. If you would invest  9,000  in TRANSCORP HOTELS PLC on September 12, 2024 and sell it today you would earn a total of  1,600  from holding TRANSCORP HOTELS PLC or generate 17.78% return on investment over 90 days.

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

TRANSCORP HOTELS PLC  vs.  AIRTEL AFRICA PLC

TRANSCORP HOTELS PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRANSCORP HOTELS PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, TRANSCORP HOTELS displayed solid returns over the last few months and may actually be approaching a breakup point.

AIRTEL AFRICA PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIRTEL AFRICA PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AIRTEL AFRICA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with TRANSCORP HOTELS and AIRTEL AFRICA

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

The idea behind TRANSCORP HOTELS PLC and AIRTEL AFRICA PLC 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.