Correlation Between Pan African and Safari Investments

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

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

Diversification Opportunities for Pan African and Safari Investments

0.58

Correlation Coefficient

Pan African  Safari Investments

Very weak diversification

The 3 months correlation between Pan and Safari is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Pan African Resources and Safari Investments RSA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safari Investments RSA and Pan African 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 Pan African Resources are associated (or correlated) with Safari Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safari Investments RSA has no effect on the direction of Pan African i.e., Pan African and Safari Investments go up and down completely randomly.

Pair Corralation between Pan African and Safari Investments

Assuming the 90 days trading horizon Pan African Resources is expected to generate 1.26 times more return on investment than Safari Investments. However, Pan African is 1.26 times more volatile than Safari Investments RSA. It trades about 0.08 of its potential returns per unit of risk. Safari Investments RSA is currently generating about -0.19 per unit of risk. If you would invest  81,000  in Pan African Resources on September 5, 2024 and sell it today you would earn a total of  3,800  from holding Pan African Resources or generate 4.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Pan African Resources  vs.  Safari Investments RSA

Pan African Resources

Risk-Adjusted Performance

11 of 100

Good

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

Safari Investments RSA

Risk-Adjusted Performance

15 of 100

Good

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

Pair Trading with Pan African and Safari Investments

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

The idea behind Pan African Resources and Safari Investments RSA 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.