Correlation Between Absa and Grindrod

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

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

Diversification Opportunities for Absa and Grindrod

-0.83

Correlation Coefficient

Absa  Grindrod

Pay attention - limited upside

The 3 months correlation between Absa and Grindrod is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and Grindrod in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grindrod 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 Grindrod. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grindrod has no effect on the direction of Absa i.e., Absa and Grindrod go up and down completely randomly.

Pair Corralation between Absa and Grindrod

Assuming the 90 days trading horizon Absa Group is expected to generate 0.79 times more return on investment than Grindrod. However, Absa Group is 1.27 times less risky than Grindrod. It trades about 0.1 of its potential returns per unit of risk. Grindrod is currently generating about -0.16 per unit of risk. If you would invest  1,710,900  in Absa Group on October 26, 2024 and sell it today you would earn a total of  139,100  from holding Absa Group or generate 8.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	96.67%
Values	Daily Returns

Absa Group  vs.  Grindrod

Absa Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Grindrod

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grindrod 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 Grindrod

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

The idea behind Absa Group and Grindrod 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.

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 the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.