Correlation Between Immersion and Karooooo

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

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

Diversification Opportunities for Immersion and Karooooo

0.54

Correlation Coefficient

Immersion  Karooooo

Very weak diversification

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

Pair Corralation between Immersion and Karooooo

Given the investment horizon of 90 days Immersion is expected to generate 1.62 times less return on investment than Karooooo. But when comparing it to its historical volatility, Immersion is 2.09 times less risky than Karooooo. It trades about 0.08 of its potential returns per unit of risk. Karooooo is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4,040  in Karooooo on September 19, 2024 and sell it today you would earn a total of  496.00  from holding Karooooo or generate 12.28% return on investment over 90 days.

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

Immersion  vs.  Karooooo

Immersion

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Immersion are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak primary indicators, Immersion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Karooooo

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Karooooo are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Karooooo displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Immersion and Karooooo

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

The idea behind Immersion and Karooooo 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.