Correlation Between HomeChoice Investments and Foschini

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

By analyzing existing cross correlation between HomeChoice Investments and Foschini Group, you can compare the effects of market volatilities on HomeChoice Investments and Foschini 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 Foschini. Check out your portfolio center. Please also check ongoing floating volatility patterns of HomeChoice Investments and Foschini.

Diversification Opportunities for HomeChoice Investments and Foschini

-0.29

Correlation Coefficient

HomeChoice Investments  Foschini

Very good diversification

The 3 months correlation between HomeChoice and Foschini is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding HomeChoice Investments and Foschini Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foschini Group 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 Foschini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foschini Group has no effect on the direction of HomeChoice Investments i.e., HomeChoice Investments and Foschini go up and down completely randomly.

Pair Corralation between HomeChoice Investments and Foschini

Assuming the 90 days trading horizon HomeChoice Investments is expected to under-perform the Foschini. In addition to that, HomeChoice Investments is 1.69 times more volatile than Foschini Group. It trades about -0.05 of its total potential returns per unit of risk. Foschini Group is currently generating about 0.19 per unit of volatility. If you would invest  1,400,000  in Foschini Group on September 4, 2024 and sell it today you would earn a total of  329,700  from holding Foschini Group or generate 23.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

HomeChoice Investments  vs.  Foschini Group

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.

Foschini Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Foschini Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Foschini exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HomeChoice Investments and Foschini

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

The idea behind HomeChoice Investments and Foschini Group 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.