Correlation Between Advanced Drainage and Sasol

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

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

Diversification Opportunities for Advanced Drainage and Sasol

-0.47

Correlation Coefficient

Advanced Drainage  Sasol

Very good diversification

The 3 months correlation between Advanced and Sasol is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Advanced Drainage Systems and Sasol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sasol and Advanced Drainage 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 Advanced Drainage Systems are associated (or correlated) with Sasol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sasol has no effect on the direction of Advanced Drainage i.e., Advanced Drainage and Sasol go up and down completely randomly.

Pair Corralation between Advanced Drainage and Sasol

Considering the 90-day investment horizon Advanced Drainage Systems is expected to under-perform the Sasol. But the stock apears to be less risky and, when comparing its historical volatility, Advanced Drainage Systems is 2.12 times less risky than Sasol. The stock trades about -0.07 of its potential returns per unit of risk. The Sasol is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  760.00  in Sasol on January 24, 2024 and sell it today you would earn a total of  33.00  from holding Sasol or generate 4.34% return on investment over 90 days.

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

Advanced Drainage Systems  vs.  Sasol

Advanced Drainage Systems

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Drainage Systems are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Advanced Drainage unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sasol

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sasol has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Sasol is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Advanced Drainage and Sasol

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

The idea behind Advanced Drainage Systems and Sasol 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.