Correlation Between Shoprite Holdings and Indexco Limited

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

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

Diversification Opportunities for Shoprite Holdings and Indexco Limited

-0.23

Correlation Coefficient

Shoprite Holdings  Indexco Limited

Very good diversification

The 3 months correlation between Shoprite and Indexco is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Shoprite Holdings and Indexco Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indexco Limited and Shoprite Holdings 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 Shoprite Holdings are associated (or correlated) with Indexco Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indexco Limited has no effect on the direction of Shoprite Holdings i.e., Shoprite Holdings and Indexco Limited go up and down completely randomly.

Pair Corralation between Shoprite Holdings and Indexco Limited

Assuming the 90 days trading horizon Shoprite Holdings is expected to generate 1.24 times less return on investment than Indexco Limited. In addition to that, Shoprite Holdings is 2.03 times more volatile than Indexco Limited . It trades about 0.03 of its total potential returns per unit of risk. Indexco Limited is currently generating about 0.07 per unit of volatility. If you would invest  410,700  in Indexco Limited on September 3, 2024 and sell it today you would earn a total of  11,000  from holding Indexco Limited or generate 2.68% return on investment over 90 days.

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

Shoprite Holdings  vs.  Indexco Limited

Shoprite Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shoprite Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Shoprite Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Indexco Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Indexco Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Indexco Limited is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shoprite Holdings and Indexco Limited

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

The idea behind Shoprite Holdings and Indexco 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.