Correlation Between ABSA Bank and Thungela Resources

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

Diversification Opportunities for ABSA Bank and Thungela Resources

0.77

Correlation Coefficient

ABSA Bank  Thungela Resources

Poor diversification

The 3 months correlation between ABSA and Thungela is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Thungela Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thungela Resources 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 Thungela Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thungela Resources has no effect on the direction of ABSA Bank i.e., ABSA Bank and Thungela Resources go up and down completely randomly.

Pair Corralation between ABSA Bank and Thungela Resources

Assuming the 90 days trading horizon ABSA Bank Limited is expected to generate 0.45 times more return on investment than Thungela Resources. However, ABSA Bank Limited is 2.25 times less risky than Thungela Resources. It trades about -0.04 of its potential returns per unit of risk. Thungela Resources Limited is currently generating about -0.05 per unit of risk. If you would invest  8,770,200  in ABSA Bank Limited on September 24, 2024 and sell it today you would lose (70,500) from holding ABSA Bank Limited or give up 0.8% of portfolio value over 90 days.

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

ABSA Bank Limited  vs.  Thungela Resources Limited

ABSA Bank Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. 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.

Thungela Resources

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Thungela Resources Limited are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Thungela Resources exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ABSA Bank and Thungela Resources

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

The idea behind ABSA Bank Limited and Thungela Resources Limited 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.