Correlation Between ABSA Bank and Sibanye Stillwater

Can any of the company-specific risk be diversified away by investing in both ABSA Bank and Sibanye Stillwater 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 Sibanye Stillwater 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 Sibanye Stillwater, you can compare the effects of market volatilities on ABSA Bank and Sibanye Stillwater 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 Sibanye Stillwater. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABSA Bank and Sibanye Stillwater.

Diversification Opportunities for ABSA Bank and Sibanye Stillwater

0.1

Correlation Coefficient

ABSA Bank  Sibanye Stillwater

Average diversification

The 3 months correlation between ABSA and Sibanye is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Sibanye Stillwater in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sibanye Stillwater 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 Sibanye Stillwater. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sibanye Stillwater has no effect on the direction of ABSA Bank i.e., ABSA Bank and Sibanye Stillwater go up and down completely randomly.

Pair Corralation between ABSA Bank and Sibanye Stillwater

Assuming the 90 days trading horizon ABSA Bank Limited is expected to generate 0.26 times more return on investment than Sibanye Stillwater. However, ABSA Bank Limited is 3.86 times less risky than Sibanye Stillwater. It trades about 0.13 of its potential returns per unit of risk. Sibanye Stillwater is currently generating about 0.02 per unit of risk. If you would invest  8,011,100  in ABSA Bank Limited on September 16, 2024 and sell it today you would earn a total of  680,000  from holding ABSA Bank Limited or generate 8.49% return on investment over 90 days.

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

ABSA Bank Limited  vs.  Sibanye Stillwater

ABSA Bank Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, ABSA Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sibanye Stillwater

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sibanye Stillwater are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Sibanye Stillwater 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 Sibanye Stillwater

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

The idea behind ABSA Bank Limited and Sibanye Stillwater 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.