Correlation Between Sun Art and Shoprite Holdings

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

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

Diversification Opportunities for Sun Art and Shoprite Holdings

0.63

Correlation Coefficient

Sun Art  Shoprite Holdings

Poor diversification

The 3 months correlation between Sun and Shoprite is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sun Art Retail and Shoprite Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shoprite Holdings and Sun Art 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 Sun Art Retail are associated (or correlated) with Shoprite Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shoprite Holdings has no effect on the direction of Sun Art i.e., Sun Art and Shoprite Holdings go up and down completely randomly.

Pair Corralation between Sun Art and Shoprite Holdings

Assuming the 90 days horizon Sun Art Retail is expected to generate 0.98 times more return on investment than Shoprite Holdings. However, Sun Art Retail is 1.02 times less risky than Shoprite Holdings. It trades about 0.27 of its potential returns per unit of risk. Shoprite Holdings Limited is currently generating about 0.14 per unit of risk. If you would invest  15.00  in Sun Art Retail on September 23, 2024 and sell it today you would earn a total of  16.00  from holding Sun Art Retail or generate 106.67% return on investment over 90 days.

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

Sun Art Retail  vs.  Shoprite Holdings Limited

Sun Art Retail

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Art Retail are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sun Art reported solid returns over the last few months and may actually be approaching a breakup point.

Shoprite Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shoprite Holdings Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shoprite Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sun Art and Shoprite Holdings

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

The idea behind Sun Art Retail and Shoprite Holdings 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.