Correlation Between HomeChoice Investments and Capitec Bank

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

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

Diversification Opportunities for HomeChoice Investments and Capitec Bank

0.2

Correlation Coefficient

HomeChoice Investments  Capitec Bank

Modest diversification

The 3 months correlation between HomeChoice and Capitec is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding HomeChoice Investments and Capitec Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitec Bank Holdings and HomeChoice Investments 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 HomeChoice Investments are associated (or correlated) with Capitec Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitec Bank Holdings has no effect on the direction of HomeChoice Investments i.e., HomeChoice Investments and Capitec Bank go up and down completely randomly.

Pair Corralation between HomeChoice Investments and Capitec Bank

Assuming the 90 days trading horizon HomeChoice Investments is expected to under-perform the Capitec Bank. In addition to that, HomeChoice Investments is 2.99 times more volatile than Capitec Bank Holdings. It trades about -0.05 of its total potential returns per unit of risk. Capitec Bank Holdings is currently generating about 0.2 per unit of volatility. If you would invest  28,716,600  in Capitec Bank Holdings on September 3, 2024 and sell it today you would earn a total of  3,895,200  from holding Capitec Bank Holdings or generate 13.56% return on investment over 90 days.

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

HomeChoice Investments  vs.  Capitec Bank Holdings

HomeChoice Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeChoice Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Capitec Bank Holdings

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Capitec Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HomeChoice Investments and Capitec Bank

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

The idea behind HomeChoice Investments and Capitec Bank Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.