Correlation Between Woolworths Holdings and Naspers

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

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

Diversification Opportunities for Woolworths Holdings and Naspers

-0.15

Correlation Coefficient

Woolworths Holdings  Naspers

Good diversification

The 3 months correlation between Woolworths and Naspers is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths Holdings and Naspers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naspers Limited and Woolworths Holdings 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 Woolworths Holdings are associated (or correlated) with Naspers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naspers Limited has no effect on the direction of Woolworths Holdings i.e., Woolworths Holdings and Naspers go up and down completely randomly.

Pair Corralation between Woolworths Holdings and Naspers

Assuming the 90 days trading horizon Woolworths Holdings is expected to under-perform the Naspers. But the stock apears to be less risky and, when comparing its historical volatility, Woolworths Holdings is 1.15 times less risky than Naspers. The stock trades about -0.05 of its potential returns per unit of risk. The Naspers Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  36,707,200  in Naspers Limited on September 23, 2024 and sell it today you would earn a total of  5,492,800  from holding Naspers Limited or generate 14.96% return on investment over 90 days.

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

Woolworths Holdings  vs.  Naspers Limited

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Naspers Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naspers Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Naspers exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Woolworths Holdings and Naspers

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

The idea behind Woolworths Holdings and Naspers Limited 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.