Correlation Between PVH Corp and African Agriculture

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

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

Diversification Opportunities for PVH Corp and African Agriculture

-0.68

Correlation Coefficient

PVH Corp  African Agriculture

Excellent diversification

The 3 months correlation between PVH and African is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding PVH Corp and African Agriculture Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Agriculture and PVH Corp 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 PVH Corp are associated (or correlated) with African Agriculture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Agriculture has no effect on the direction of PVH Corp i.e., PVH Corp and African Agriculture go up and down completely randomly.

Pair Corralation between PVH Corp and African Agriculture

Considering the 90-day investment horizon PVH Corp is expected to generate 147.22 times less return on investment than African Agriculture. But when comparing it to its historical volatility, PVH Corp is 74.96 times less risky than African Agriculture. It trades about 0.11 of its potential returns per unit of risk. African Agriculture Holdings is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  0.86  in African Agriculture Holdings on September 16, 2024 and sell it today you would lose (0.49) from holding African Agriculture Holdings or give up 56.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	16.92%
Values	Daily Returns

PVH Corp  vs.  African Agriculture Holdings

PVH Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PVH Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, PVH Corp demonstrated solid returns over the last few months and may actually be approaching a breakup point.

African Agriculture

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days African Agriculture Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly unfluctuating basic indicators, African Agriculture showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PVH Corp and African Agriculture

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

The idea behind PVH Corp and African Agriculture Holdings 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.