Correlation Between Foschini and Allan Gray

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

By analyzing existing cross correlation between Foschini Group and Allan Gray Equity, you can compare the effects of market volatilities on Foschini and Allan Gray 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 Foschini with a short position of Allan Gray. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foschini and Allan Gray.

Diversification Opportunities for Foschini and Allan Gray

0.19

Correlation Coefficient

Foschini  Allan Gray

Average diversification

The 3 months correlation between Foschini and Allan is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Foschini Group and Allan Gray Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allan Gray Equity and Foschini 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 Foschini Group are associated (or correlated) with Allan Gray. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allan Gray Equity has no effect on the direction of Foschini i.e., Foschini and Allan Gray go up and down completely randomly.

Pair Corralation between Foschini and Allan Gray

Assuming the 90 days trading horizon Foschini Group is expected to generate 3.06 times more return on investment than Allan Gray. However, Foschini is 3.06 times more volatile than Allan Gray Equity. It trades about 0.15 of its potential returns per unit of risk. Allan Gray Equity is currently generating about 0.0 per unit of risk. If you would invest  1,432,500  in Foschini Group on September 3, 2024 and sell it today you would earn a total of  272,100  from holding Foschini Group or generate 18.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Foschini Group  vs.  Allan Gray Equity

Foschini Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Foschini Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Foschini exhibited solid returns over the last few months and may actually be approaching a breakup point.

Allan Gray Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allan Gray Equity has generated negative risk-adjusted returns adding no value to fund investors. Despite fairly strong basic indicators, Allan Gray is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Foschini and Allan Gray

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

The idea behind Foschini Group and Allan Gray Equity 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.