Correlation Between Absa and RMB Holdings
Can any of the company-specific risk be diversified away by investing in both Absa and RMB Holdings 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 RMB Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Absa Group and RMB Holdings, you can compare the effects of market volatilities on Absa and RMB Holdings 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 RMB Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Absa and RMB Holdings.
Diversification Opportunities for Absa and RMB Holdings
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Absa and RMB is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Absa Group and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB 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 RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of Absa i.e., Absa and RMB Holdings go up and down completely randomly.
Pair Corralation between Absa and RMB Holdings
Assuming the 90 days trading horizon Absa Group is expected to generate 1.26 times more return on investment than RMB Holdings. However, Absa is 1.26 times more volatile than RMB Holdings. It trades about 0.35 of its potential returns per unit of risk. RMB Holdings is currently generating about 0.16 per unit of risk. If you would invest 1,703,600 in Absa Group on September 24, 2024 and sell it today you would earn a total of 233,300 from holding Absa Group or generate 13.69% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Absa Group vs. RMB Holdings
Performance |
Timeline |
Absa Group |
RMB Holdings |
Absa and RMB Holdings Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Absa and RMB Holdings
The main advantage of trading using opposite Absa and RMB Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Absa position performs unexpectedly, RMB Holdings 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 RMB Holdings will offset losses from the drop in RMB Holdings' long position.Absa vs. ABSA Bank Limited | Absa vs. Capitec Bank Holdings | Absa vs. Standard Bank Group | Absa vs. Capitec Bank Holdings |
RMB Holdings vs. ABSA Bank Limited | RMB Holdings vs. Capitec Bank Holdings | RMB Holdings vs. Standard Bank Group | RMB Holdings vs. Capitec Bank Holdings |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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