Correlation Between Vodacom and Life Healthcare

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

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

Diversification Opportunities for Vodacom and Life Healthcare

-0.02

Correlation Coefficient

Vodacom  Life Healthcare

Good diversification

The 3 months correlation between Vodacom and Life is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Vodacom Group and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare and Vodacom 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 Vodacom Group are associated (or correlated) with Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of Vodacom i.e., Vodacom and Life Healthcare go up and down completely randomly.

Pair Corralation between Vodacom and Life Healthcare

Assuming the 90 days trading horizon Vodacom Group is expected to under-perform the Life Healthcare. In addition to that, Vodacom is 1.3 times more volatile than Life Healthcare. It trades about -0.14 of its total potential returns per unit of risk. Life Healthcare is currently generating about -0.15 per unit of volatility. If you would invest  172,319  in Life Healthcare on October 9, 2024 and sell it today you would lose (4,819) from holding Life Healthcare or give up 2.8% of portfolio value over 90 days.

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

Vodacom Group  vs.  Life Healthcare

Vodacom Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodacom Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Vodacom is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Life Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Life Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vodacom and Life Healthcare

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

The idea behind Vodacom Group and Life Healthcare 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.