Correlation Between Custodian BCI and Dis Chem

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

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

Diversification Opportunities for Custodian BCI and Dis Chem

0.76

Correlation Coefficient

Custodian BCI  Dis Chem

Poor diversification

The 3 months correlation between Custodian and Dis is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Custodian BCI Balanced and Dis Chem Pharmacies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dis Chem Pharmacies and Custodian BCI 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 Custodian BCI Balanced are associated (or correlated) with Dis Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dis Chem Pharmacies has no effect on the direction of Custodian BCI i.e., Custodian BCI and Dis Chem go up and down completely randomly.

Pair Corralation between Custodian BCI and Dis Chem

Assuming the 90 days trading horizon Custodian BCI is expected to generate 1.6 times less return on investment than Dis Chem. But when comparing it to its historical volatility, Custodian BCI Balanced is 3.2 times less risky than Dis Chem. It trades about 0.18 of its potential returns per unit of risk. Dis Chem Pharmacies is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  348,946  in Dis Chem Pharmacies on September 4, 2024 and sell it today you would earn a total of  25,254  from holding Dis Chem Pharmacies or generate 7.24% return on investment over 90 days.

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

Custodian BCI Balanced  vs.  Dis Chem Pharmacies

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.

Dis Chem Pharmacies

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dis Chem Pharmacies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Dis Chem may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Custodian BCI and Dis Chem

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

The idea behind Custodian BCI Balanced and Dis Chem Pharmacies 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.