Correlation Between ABSA Bank and E Media

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

By analyzing existing cross correlation between ABSA Bank Limited and E Media Holdings, you can compare the effects of market volatilities on ABSA Bank and E Media 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 Bank with a short position of E Media. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and E Media.

Diversification Opportunities for ABSA Bank and E Media

0.21

Correlation Coefficient

ABSA Bank  E Media

Modest diversification

The 3 months correlation between ABSA and EMH is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and E Media Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Media Holdings and ABSA Bank 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 Bank Limited are associated (or correlated) with E Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Media Holdings has no effect on the direction of ABSA Bank i.e., ABSA Bank and E Media go up and down completely randomly.

Pair Corralation between ABSA Bank and E Media

Assuming the 90 days trading horizon ABSA Bank Limited is expected to under-perform the E Media. But the stock apears to be less risky and, when comparing its historical volatility, ABSA Bank Limited is 3.2 times less risky than E Media. The stock trades about -0.08 of its potential returns per unit of risk. The E Media Holdings is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  35,500  in E Media Holdings on December 29, 2024 and sell it today you would lose (2,900) from holding E Media Holdings or give up 8.17% of portfolio value over 90 days.

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

ABSA Bank Limited  vs.  E Media Holdings

ABSA Bank Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days ABSA Bank Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ABSA Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

E Media Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days E Media Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, E Media is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ABSA Bank and E Media

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

The idea behind ABSA Bank Limited and E Media 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.