Correlation Between Karooooo and Model N

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

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

Diversification Opportunities for Karooooo and Model N

0.21

Correlation Coefficient

Karooooo  Model N

Modest diversification

The 3 months correlation between Karooooo and Model is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Karooooo and Model N in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Model N and Karooooo 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 Karooooo are associated (or correlated) with Model N. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Model N has no effect on the direction of Karooooo i.e., Karooooo and Model N go up and down completely randomly.

Pair Corralation between Karooooo and Model N

Given the investment horizon of 90 days Karooooo is expected to generate 1.61 times more return on investment than Model N. However, Karooooo is 1.61 times more volatile than Model N. It trades about 0.06 of its potential returns per unit of risk. Model N is currently generating about -0.02 per unit of risk. If you would invest  2,235  in Karooooo on September 19, 2024 and sell it today you would earn a total of  2,389  from holding Karooooo or generate 106.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.6%
Values	Daily Returns

Karooooo  vs.  Model N

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.

Model N

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Model N has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Model N is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Karooooo and Model N

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

The idea behind Karooooo and Model N 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.