Correlation Between U S Cellular and Airtel Africa

Can any of the company-specific risk be diversified away by investing in both U S Cellular 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 U S Cellular and Airtel Africa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United States Cellular and Airtel Africa Plc, you can compare the effects of market volatilities on U S Cellular 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 U S Cellular with a short position of Airtel Africa. Check out your portfolio center. Please also check ongoing floating volatility patterns of U S Cellular and Airtel Africa.

Diversification Opportunities for U S Cellular and Airtel Africa

-0.12

Correlation Coefficient

U S Cellular  Airtel Africa

Good diversification

The 3 months correlation between USM and Airtel is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding United States Cellular 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 U S Cellular 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 United States Cellular 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 U S Cellular i.e., U S Cellular and Airtel Africa go up and down completely randomly.

Pair Corralation between U S Cellular and Airtel Africa

Considering the 90-day investment horizon United States Cellular is expected to under-perform the Airtel Africa. But the stock apears to be less risky and, when comparing its historical volatility, United States Cellular is 6.3 times less risky than Airtel Africa. The stock trades about -0.03 of its potential returns per unit of risk. The Airtel Africa Plc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  125.00  in Airtel Africa Plc on October 26, 2024 and sell it today you would earn a total of  25.00  from holding Airtel Africa Plc or generate 20.0% return on investment over 90 days.

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

United States Cellular  vs.  Airtel Africa Plc

United States Cellular

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United States Cellular are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, U S Cellular is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Airtel Africa Plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Airtel Africa Plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Airtel Africa reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with U S Cellular and Airtel Africa

The main advantage of trading using opposite U S Cellular and Airtel Africa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if U S Cellular 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 United States Cellular 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.