Correlation Between Bourse Direct and IT Link

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

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

Diversification Opportunities for Bourse Direct and IT Link

0.08

Correlation Coefficient

Bourse Direct  IT Link

Significant diversification

The 3 months correlation between Bourse and ALITL is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Bourse Direct SA and IT Link in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IT Link and Bourse Direct 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 Bourse Direct SA are associated (or correlated) with IT Link. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IT Link has no effect on the direction of Bourse Direct i.e., Bourse Direct and IT Link go up and down completely randomly.

Pair Corralation between Bourse Direct and IT Link

Assuming the 90 days trading horizon Bourse Direct SA is expected to under-perform the IT Link. But the stock apears to be less risky and, when comparing its historical volatility, Bourse Direct SA is 1.32 times less risky than IT Link. The stock trades about -0.17 of its potential returns per unit of risk. The IT Link is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  2,680  in IT Link on September 5, 2024 and sell it today you would lose (120.00) from holding IT Link or give up 4.48% of portfolio value over 90 days.

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

Bourse Direct SA  vs.  IT Link

Bourse Direct SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bourse Direct SA 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 fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

IT Link

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bourse Direct and IT Link

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

The idea behind Bourse Direct SA and IT Link 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.