Correlation Between CAFCA and STAR AFRICA

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

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

Diversification Opportunities for CAFCA and STAR AFRICA

0.54

Correlation Coefficient

CAFCA  STAR AFRICA

Very weak diversification

The 3 months correlation between CAFCA and STAR is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding CAFCA LIMITED and STAR AFRICA PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STAR AFRICA PORATION and CAFCA 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 CAFCA LIMITED are associated (or correlated) with STAR AFRICA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STAR AFRICA PORATION has no effect on the direction of CAFCA i.e., CAFCA and STAR AFRICA go up and down completely randomly.

Pair Corralation between CAFCA and STAR AFRICA

Assuming the 90 days trading horizon CAFCA is expected to generate 1.11 times less return on investment than STAR AFRICA. But when comparing it to its historical volatility, CAFCA LIMITED is 2.75 times less risky than STAR AFRICA. It trades about 0.22 of its potential returns per unit of risk. STAR AFRICA PORATION is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  168.00  in STAR AFRICA PORATION on September 28, 2024 and sell it today you would earn a total of  52.00  from holding STAR AFRICA PORATION or generate 30.95% return on investment over 90 days.

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

CAFCA LIMITED  vs.  STAR AFRICA PORATION

CAFCA LIMITED

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAFCA LIMITED are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, CAFCA showed solid returns over the last few months and may actually be approaching a breakup point.

STAR AFRICA PORATION

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in STAR AFRICA PORATION are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, STAR AFRICA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAFCA and STAR AFRICA

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

The idea behind CAFCA LIMITED and STAR AFRICA PORATION 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.