Correlation Between ABSA Bank and Trencor

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

Diversification Opportunities for ABSA Bank and Trencor

0.4

Correlation Coefficient

ABSA Bank  Trencor

Very weak diversification

The 3 months correlation between ABSA and Trencor is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding ABSA Bank Limited and Trencor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trencor 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 Trencor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trencor has no effect on the direction of ABSA Bank i.e., ABSA Bank and Trencor go up and down completely randomly.

Pair Corralation between ABSA Bank and Trencor

Assuming the 90 days trading horizon ABSA Bank Limited is expected to under-perform the Trencor. But the stock apears to be less risky and, when comparing its historical volatility, ABSA Bank Limited is 1.65 times less risky than Trencor. The stock trades about -0.14 of its potential returns per unit of risk. The Trencor is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  76,500  in Trencor on October 23, 2024 and sell it today you would earn a total of  3,200  from holding Trencor or generate 4.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

ABSA Bank Limited  vs.  Trencor

ABSA Bank Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABSA Bank Limited are ranked lower than 1 (%) 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.

Trencor

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trencor 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, Trencor may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ABSA Bank and Trencor

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

The idea behind ABSA Bank Limited and Trencor 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.