Correlation Between Woolworths Holdings and Shoprite Holdings

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

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

Diversification Opportunities for Woolworths Holdings and Shoprite Holdings

0.05

Correlation Coefficient

Woolworths Holdings  Shoprite Holdings

Significant diversification

The 3 months correlation between Woolworths and Shoprite is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Woolworths Holdings and Shoprite Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings 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 Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Woolworths Holdings i.e., Woolworths Holdings and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Woolworths Holdings and Shoprite Holdings

Assuming the 90 days trading horizon Woolworths Holdings is expected to generate 1.28 times less return on investment than Shoprite Holdings. In addition to that, Woolworths Holdings is 1.23 times more volatile than Shoprite Holdings. It trades about 0.05 of its total potential returns per unit of risk. Shoprite Holdings is currently generating about 0.08 per unit of volatility. If you would invest  2,935,919  in Shoprite Holdings on September 15, 2024 and sell it today you would earn a total of  194,081  from holding Shoprite Holdings or generate 6.61% return on investment over 90 days.

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

Woolworths Holdings  vs.  Shoprite Holdings

Woolworths Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Woolworths Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Shoprite Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shoprite Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Shoprite Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Woolworths Holdings and Shoprite Holdings

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

The idea behind Woolworths Holdings and Shoprite Holdings 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.