Correlation Between Hershey Foods and Afya

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Can any of the company-specific risk be diversified away by investing in both Hershey Foods and Afya 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 Hershey Foods and Afya into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hershey Foods Corp and Afya Ltd Cl, you can compare the effects of market volatilities on Hershey Foods and Afya 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 Hershey Foods with a short position of Afya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hershey Foods and Afya.

Diversification Opportunities for Hershey Foods and Afya

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Hershey and Afya is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hershey Foods Corp and Afya Ltd Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Afya Ltd Cl and Hershey Foods 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 Hershey Foods Corp are associated (or correlated) with Afya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Afya Ltd Cl has no effect on the direction of Hershey Foods i.e., Hershey Foods and Afya go up and down completely randomly.

Pair Corralation between Hershey Foods and Afya

Considering the 90-day investment horizon Hershey Foods Corp is expected to generate 0.38 times more return on investment than Afya. However, Hershey Foods Corp is 2.65 times less risky than Afya. It trades about 0.09 of its potential returns per unit of risk. Afya Ltd Cl is currently generating about -0.03 per unit of risk. If you would invest  13,954  in Hershey Foods Corp on June 27, 2022 and sell it today you would earn a total of  8,440  from holding Hershey Foods Corp or generate 60.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy99.8%
ValuesDaily Returns

Hershey Foods Corp  vs.  Afya Ltd Cl

 Performance (%) 
       Timeline  
Hershey Foods Corp 
Hershey Performance
0 of 100
Over the last 90 days Hershey Foods Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Hershey Foods is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Afya Ltd Cl 
Afya Performance
15 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Afya Ltd Cl are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Afya sustained solid returns over the last few months and may actually be approaching a breakup point.

Afya Price Channel

Hershey Foods and Afya Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hershey Foods and Afya

The main advantage of trading using opposite Hershey Foods and Afya positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hershey Foods position performs unexpectedly, Afya 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 Afya will offset losses from the drop in Afya's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Hershey Foods as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Hershey Foods' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Hershey Foods' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Hershey Foods Corp.
The idea behind Hershey Foods Corp and Afya Ltd Cl 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.
Afya vs. BUSHVELD MINERALS LTD
Check out your portfolio center. 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 Analyst Recommendations module to analyst recommendations and target price estimates broken down by several categories.

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