Correlation Between Brand and Sarfati

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

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

Diversification Opportunities for Brand and Sarfati

0.88

Correlation Coefficient

Brand  Sarfati

Very poor diversification

The 3 months correlation between Brand and Sarfati is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Brand Group and Sarfati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sarfati and Brand 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 Brand Group 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 Brand i.e., Brand and Sarfati go up and down completely randomly.

Pair Corralation between Brand and Sarfati

Assuming the 90 days trading horizon Brand is expected to generate 1.89 times less return on investment than Sarfati. In addition to that, Brand is 1.19 times more volatile than Sarfati. It trades about 0.03 of its total potential returns per unit of risk. Sarfati is currently generating about 0.08 per unit of volatility. If you would invest  247,550  in Sarfati on September 28, 2024 and sell it today you would earn a total of  171,750  from holding Sarfati or generate 69.38% return on investment over 90 days.

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

Brand Group  vs.  Sarfati

Brand Group

Risk-Adjusted Performance

19 of 100

Solid

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

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 Brand and Sarfati

The main advantage of trading using opposite Brand and Sarfati positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brand 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 Brand Group 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.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.