Correlation Between African Agriculture and CHS

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

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

Diversification Opportunities for African Agriculture and CHS

0.66

Correlation Coefficient

African Agriculture  CHS

Poor diversification

The 3 months correlation between African and CHS is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding African Agriculture Holdings and CHS Inc CP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHS Inc CP and African Agriculture 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 African Agriculture Holdings are associated (or correlated) with CHS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHS Inc CP has no effect on the direction of African Agriculture i.e., African Agriculture and CHS go up and down completely randomly.

Pair Corralation between African Agriculture and CHS

Assuming the 90 days horizon African Agriculture Holdings is expected to generate 195.27 times more return on investment than CHS. However, African Agriculture is 195.27 times more volatile than CHS Inc CP. It trades about 0.22 of its potential returns per unit of risk. CHS Inc CP is currently generating about -0.09 per unit of risk. If you would invest  0.86  in African Agriculture Holdings on September 16, 2024 and sell it today you would lose (0.49) from holding African Agriculture Holdings or give up 56.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	16.92%
Values	Daily Returns

African Agriculture Holdings  vs.  CHS Inc CP

African Agriculture

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days African Agriculture Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, African Agriculture showed solid returns over the last few months and may actually be approaching a breakup point.

CHS Inc CP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHS Inc CP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, CHS is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with African Agriculture and CHS

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

The idea behind African Agriculture Holdings and CHS Inc CP 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..