Correlation Between African Rainbow and Advtech

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

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

Diversification Opportunities for African Rainbow and Advtech

0.44

Correlation Coefficient

African Rainbow  Advtech

Very weak diversification

The 3 months correlation between African and Advtech is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding African Rainbow Capital and Advtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advtech and African Rainbow 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 Rainbow Capital are associated (or correlated) with Advtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advtech has no effect on the direction of African Rainbow i.e., African Rainbow and Advtech go up and down completely randomly.

Pair Corralation between African Rainbow and Advtech

Assuming the 90 days trading horizon African Rainbow is expected to generate 1.27 times less return on investment than Advtech. In addition to that, African Rainbow is 1.36 times more volatile than Advtech. It trades about 0.05 of its total potential returns per unit of risk. Advtech is currently generating about 0.09 per unit of volatility. If you would invest  310,000  in Advtech on September 14, 2024 and sell it today you would earn a total of  20,000  from holding Advtech or generate 6.45% return on investment over 90 days.

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

African Rainbow Capital  vs.  Advtech

African Rainbow Capital

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in African Rainbow Capital are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, African Rainbow is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Advtech

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Advtech are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Advtech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with African Rainbow and Advtech

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

The idea behind African Rainbow Capital and Advtech 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.