Correlation Between Discovery Balanced and Absa Multi

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

By analyzing existing cross correlation between Discovery Balanced and Absa Multi managed Absolute, you can compare the effects of market volatilities on Discovery Balanced and Absa Multi 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 Discovery Balanced with a short position of Absa Multi. Check out your portfolio center. Please also check ongoing floating volatility patterns of Discovery Balanced and Absa Multi.

Diversification Opportunities for Discovery Balanced and Absa Multi

0.82

Correlation Coefficient

Discovery Balanced  Absa Multi

Very poor diversification

The 3 months correlation between Discovery and Absa is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Discovery Balanced and Absa Multi managed Absolute in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Multi managed and Discovery Balanced 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 Discovery Balanced are associated (or correlated) with Absa Multi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Multi managed has no effect on the direction of Discovery Balanced i.e., Discovery Balanced and Absa Multi go up and down completely randomly.

Pair Corralation between Discovery Balanced and Absa Multi

Assuming the 90 days trading horizon Discovery Balanced is expected to generate 1.67 times more return on investment than Absa Multi. However, Discovery Balanced is 1.67 times more volatile than Absa Multi managed Absolute. It trades about 0.18 of its potential returns per unit of risk. Absa Multi managed Absolute is currently generating about 0.1 per unit of risk. If you would invest  289.00  in Discovery Balanced on September 14, 2024 and sell it today you would earn a total of  17.00  from holding Discovery Balanced or generate 5.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.88%
Values	Daily Returns

Discovery Balanced  vs.  Absa Multi managed Absolute

Discovery Balanced

Risk-Adjusted Performance

14 of 100

Good

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

Absa Multi managed

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Multi managed Absolute are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Absa Multi is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Discovery Balanced and Absa Multi

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

The idea behind Discovery Balanced and Absa Multi managed Absolute 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.