Correlation Between African Discovery and Black Diamond

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

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

Diversification Opportunities for African Discovery and Black Diamond

-0.32

Correlation Coefficient

African Discovery  Black Diamond

Very good diversification

The 3 months correlation between African and Black is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding African Discovery Group and Black Diamond Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Diamond Group and African Discovery 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 African Discovery Group are associated (or correlated) with Black Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Diamond Group has no effect on the direction of African Discovery i.e., African Discovery and Black Diamond go up and down completely randomly.

Pair Corralation between African Discovery and Black Diamond

Given the investment horizon of 90 days African Discovery Group is expected to generate 7.5 times more return on investment than Black Diamond. However, African Discovery is 7.5 times more volatile than Black Diamond Group. It trades about 0.06 of its potential returns per unit of risk. Black Diamond Group is currently generating about 0.07 per unit of risk. If you would invest  1.40  in African Discovery Group on March 4, 2025 and sell it today you would lose (0.60) from holding African Discovery Group or give up 42.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	57.09%
Values	Daily Returns

African Discovery Group  vs.  Black Diamond Group

African Discovery

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in African Discovery Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, African Discovery reported solid returns over the last few months and may actually be approaching a breakup point.

Black Diamond Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Black Diamond Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Black Diamond reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with African Discovery and Black Diamond

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

The idea behind African Discovery Group and Black Diamond Group 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.