Correlation Between Bram Indus and Sarfati

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

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

Diversification Opportunities for Bram Indus and Sarfati

0.67

Correlation Coefficient

Bram Indus  Sarfati

Poor diversification

The 3 months correlation between Bram and Sarfati is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bram Indus and Sarfati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarfati and Bram Indus 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 Bram Indus are associated (or correlated) with Sarfati. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sarfati has no effect on the direction of Bram Indus i.e., Bram Indus and Sarfati go up and down completely randomly.

Pair Corralation between Bram Indus and Sarfati

Assuming the 90 days trading horizon Bram Indus is expected to generate 8.82 times less return on investment than Sarfati. In addition to that, Bram Indus is 2.41 times more volatile than Sarfati. It trades about 0.01 of its total potential returns per unit of risk. Sarfati is currently generating about 0.24 per unit of volatility. If you would invest  349,800  in Sarfati on September 28, 2024 and sell it today you would earn a total of  69,500  from holding Sarfati or generate 19.87% return on investment over 90 days.

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

Bram Indus  vs.  Sarfati

Bram Indus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bram Indus has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bram Indus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sarfati

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sarfati are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sarfati sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bram Indus and Sarfati

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

The idea behind Bram Indus and Sarfati 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.