Correlation Between Allan Gray and Custodian BCI

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

By analyzing existing cross correlation between Allan Gray Equity and Custodian BCI Balanced, you can compare the effects of market volatilities on Allan Gray and Custodian BCI 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 Allan Gray with a short position of Custodian BCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allan Gray and Custodian BCI.

Diversification Opportunities for Allan Gray and Custodian BCI

0.96

Correlation Coefficient

Allan Gray  Custodian BCI

Almost no diversification

The 3 months correlation between Allan and Custodian is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Allan Gray Equity and Custodian BCI Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Custodian BCI Balanced and Allan Gray 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 Allan Gray Equity are associated (or correlated) with Custodian BCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Custodian BCI Balanced has no effect on the direction of Allan Gray i.e., Allan Gray and Custodian BCI go up and down completely randomly.

Pair Corralation between Allan Gray and Custodian BCI

Assuming the 90 days trading horizon Allan Gray Equity is expected to generate 1.17 times more return on investment than Custodian BCI. However, Allan Gray is 1.17 times more volatile than Custodian BCI Balanced. It trades about 0.16 of its potential returns per unit of risk. Custodian BCI Balanced is currently generating about 0.18 per unit of risk. If you would invest  58,751  in Allan Gray Equity on September 4, 2024 and sell it today you would earn a total of  2,786  from holding Allan Gray Equity or generate 4.74% return on investment over 90 days.

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

Allan Gray Equity  vs.  Custodian BCI Balanced

Allan Gray Equity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allan Gray Equity are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. Despite fairly strong basic indicators, Allan Gray is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Custodian BCI Balanced

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Custodian BCI Balanced are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. Despite fairly strong basic indicators, Custodian BCI is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Allan Gray and Custodian BCI

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

The idea behind Allan Gray Equity and Custodian BCI Balanced 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.