Correlation Between AFROMEDIA PLC and CORONATION INSURANCE

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Apply Can any of the company-specific risk be diversified away by investing in both AFROMEDIA PLC and CORONATION INSURANCE 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 AFROMEDIA PLC and CORONATION INSURANCE into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for AFROMEDIA PLC and CORONATION INSURANCE

Pair Corralation between AFROMEDIA PLC and CORONATION INSURANCE

AFROMEDIA PLC  vs.  CORONATION INSURANCE PLC

Pair Trading with AFROMEDIA PLC and CORONATION INSURANCE

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