Correlation Between Sasol and ITM Power

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

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

Diversification Opportunities for Sasol and ITM Power

0.88

Correlation Coefficient

Sasol  ITM Power

Very poor diversification

The 3 months correlation between Sasol and ITM is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sasol Limited and ITM Power Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITM Power Plc and Sasol 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 Sasol Limited are associated (or correlated) with ITM Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITM Power Plc has no effect on the direction of Sasol i.e., Sasol and ITM Power go up and down completely randomly.

Pair Corralation between Sasol and ITM Power

Assuming the 90 days horizon Sasol is expected to generate 1.65 times less return on investment than ITM Power. But when comparing it to its historical volatility, Sasol Limited is 1.63 times less risky than ITM Power. It trades about 0.18 of its potential returns per unit of risk. ITM Power Plc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  41.00  in ITM Power Plc on April 30, 2025 and sell it today you would earn a total of  39.00  from holding ITM Power Plc or generate 95.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Sasol Limited  vs.  ITM Power Plc

Sasol Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sasol Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Sasol reported solid returns over the last few months and may actually be approaching a breakup point.

ITM Power Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ITM Power Plc are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ITM Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sasol and ITM Power

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

The idea behind Sasol Limited and ITM Power 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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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.