Correlation Between CORONATION INSURANCE and ABC TRANSPORT

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

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

Diversification Opportunities for CORONATION INSURANCE and ABC TRANSPORT

-0.2

Correlation Coefficient

CORONATION INSURANCE  ABC TRANSPORT

Good diversification

The 3 months correlation between CORONATION and ABC is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding CORONATION INSURANCE PLC and ABC TRANSPORT PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC TRANSPORT PLC and CORONATION INSURANCE 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 CORONATION INSURANCE PLC are associated (or correlated) with ABC TRANSPORT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC TRANSPORT PLC has no effect on the direction of CORONATION INSURANCE i.e., CORONATION INSURANCE and ABC TRANSPORT go up and down completely randomly.

Pair Corralation between CORONATION INSURANCE and ABC TRANSPORT

Assuming the 90 days trading horizon CORONATION INSURANCE PLC is expected to generate 1.1 times more return on investment than ABC TRANSPORT. However, CORONATION INSURANCE is 1.1 times more volatile than ABC TRANSPORT PLC. It trades about 0.78 of its potential returns per unit of risk. ABC TRANSPORT PLC is currently generating about 0.09 per unit of risk. If you would invest  117.00  in CORONATION INSURANCE PLC on October 10, 2024 and sell it today you would earn a total of  152.00  from holding CORONATION INSURANCE PLC or generate 129.91% return on investment over 90 days.

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

CORONATION INSURANCE PLC  vs.  ABC TRANSPORT PLC

CORONATION INSURANCE PLC

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in CORONATION INSURANCE PLC are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, CORONATION INSURANCE showed solid returns over the last few months and may actually be approaching a breakup point.

ABC TRANSPORT PLC

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days ABC TRANSPORT PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, ABC TRANSPORT is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CORONATION INSURANCE and ABC TRANSPORT

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

The idea behind CORONATION INSURANCE PLC and ABC TRANSPORT 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 Transaction History module to view history of all your transactions and understand their impact on performance.