Correlation Between African Discovery and BOC Aviation

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

By analyzing existing cross correlation between African Discovery Group and BOC Aviation Limited, you can compare the effects of market volatilities on African Discovery and BOC Aviation 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 Discovery with a short position of BOC Aviation. Check out your portfolio center. Please also check ongoing floating volatility patterns of African Discovery and BOC Aviation.

Diversification Opportunities for African Discovery and BOC Aviation

0.64

Correlation Coefficient

African Discovery  BOC Aviation

Poor diversification

The 3 months correlation between African and BOC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding African Discovery Group and BOC Aviation Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BOC Aviation Limited and African Discovery 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 Discovery Group are associated (or correlated) with BOC Aviation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BOC Aviation Limited has no effect on the direction of African Discovery i.e., African Discovery and BOC Aviation go up and down completely randomly.

Pair Corralation between African Discovery and BOC Aviation

Given the investment horizon of 90 days African Discovery is expected to generate 5.47 times less return on investment than BOC Aviation. But when comparing it to its historical volatility, African Discovery Group is 1.97 times less risky than BOC Aviation. It trades about 0.05 of its potential returns per unit of risk. BOC Aviation Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  300.00  in BOC Aviation Limited on September 2, 2024 and sell it today you would earn a total of  435.00  from holding BOC Aviation Limited or generate 145.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	66.94%
Values	Daily Returns

African Discovery Group  vs.  BOC Aviation Limited

African Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days African Discovery Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

BOC Aviation Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BOC Aviation Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with African Discovery and BOC Aviation

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

The idea behind African Discovery Group and BOC Aviation Limited 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.