Correlation Between Life Healthcare and JSE

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

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

Diversification Opportunities for Life Healthcare and JSE

0.45

Correlation Coefficient

Life Healthcare  JSE

Very weak diversification

The 3 months correlation between Life and JSE is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Life Healthcare and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited and Life Healthcare 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 Life Healthcare are associated (or correlated) with JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of Life Healthcare i.e., Life Healthcare and JSE go up and down completely randomly.

Pair Corralation between Life Healthcare and JSE

Assuming the 90 days trading horizon Life Healthcare is expected to generate 1.61 times more return on investment than JSE. However, Life Healthcare is 1.61 times more volatile than JSE Limited. It trades about 0.15 of its potential returns per unit of risk. JSE Limited is currently generating about 0.07 per unit of risk. If you would invest  140,800  in Life Healthcare on September 3, 2024 and sell it today you would earn a total of  26,000  from holding Life Healthcare or generate 18.47% return on investment over 90 days.

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

Life Healthcare  vs.  JSE Limited

Life Healthcare

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Life Healthcare are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Life Healthcare exhibited solid returns over the last few months and may actually be approaching a breakup point.

JSE Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JSE Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, JSE is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Life Healthcare and JSE

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

The idea behind Life Healthcare and JSE Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.