Correlation Between Absa and Aspen Pharmacare

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

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

Diversification Opportunities for Absa and Aspen Pharmacare

-0.54

Correlation Coefficient

Absa  Aspen Pharmacare

Excellent diversification

The 3 months correlation between Absa and Aspen is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and Aspen Pharmacare Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aspen Pharmacare Holdings and Absa 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 Absa Group are associated (or correlated) with Aspen Pharmacare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aspen Pharmacare Holdings has no effect on the direction of Absa i.e., Absa and Aspen Pharmacare go up and down completely randomly.

Pair Corralation between Absa and Aspen Pharmacare

Assuming the 90 days trading horizon Absa Group is expected to under-perform the Aspen Pharmacare. But the stock apears to be less risky and, when comparing its historical volatility, Absa Group is 1.95 times less risky than Aspen Pharmacare. The stock trades about -0.01 of its potential returns per unit of risk. The Aspen Pharmacare Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,690,000  in Aspen Pharmacare Holdings on October 10, 2024 and sell it today you would earn a total of  16,000  from holding Aspen Pharmacare Holdings or generate 0.95% return on investment over 90 days.

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

Absa Group  vs.  Aspen Pharmacare Holdings

Absa Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Aspen Pharmacare Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aspen Pharmacare Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Absa and Aspen Pharmacare

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

The idea behind Absa Group and Aspen Pharmacare Holdings 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.